Don't Race Out To Buy Associated International Hotels Limited (HKG:105) Just Because It's Going Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Associated International Hotels Limited (HKG:105) is about to go ex-dividend in just four days. This means that investors who purchase shares on or after the 14th of December will not receive the dividend, which will be paid on the 7th of January.

Associated International Hotels's upcoming dividend is HK$0.25 a share, following on from the last 12 months, when the company distributed a total of HK$0.50 per share to shareholders. Last year's total dividend payments show that Associated International Hotels has a trailing yield of 3.7% on the current share price of HK$13.6. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Associated International Hotels has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Associated International Hotels

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Associated International Hotels 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 Associated International Hotels didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Associated International Hotels paid out more free cash flow than it generated - 134%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Click here to see how much of its profit Associated International Hotels paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Associated International Hotels was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Associated International Hotels has lifted its dividend by approximately 1.2% a year on average.

Get our latest analysis on Associated International Hotels's balance sheet health here.

The Bottom Line

Is Associated International Hotels an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Associated International Hotels.

With that in mind though, if the poor dividend characteristics of Associated International Hotels don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for Associated International Hotels (1 is concerning!) that you ought to be aware of before buying the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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