It Might Not Be A Great Idea To Buy Winfair Investment Company Limited (HKG:287) For Its Next Dividend

Winfair Investment Company Limited (HKG:287) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Winfair Investment's shares before the 17th of December in order to receive the dividend, which the company will pay on the 9th of January.

The company's next dividend payment will be HK$0.02 per share, on the back of last year when the company paid a total of HK$0.14 to shareholders. Based on the last year's worth of payments, Winfair Investment stock has a trailing yield of around 4.3% on the current share price of HK$3.25. If you buy this business for its dividend, you should have an idea of whether Winfair Investment's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Winfair Investment

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Winfair Investment reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.

Click here to see how much of its profit Winfair Investment paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Winfair Investment reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Winfair Investment has lifted its dividend by approximately 1.6% a year on average.

Get our latest analysis on Winfair Investment's balance sheet health here.

Final Takeaway

Should investors buy Winfair Investment for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Winfair Investment and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Winfair Investment is showing 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.