Do These 3 Checks Before Buying Cheuk Nang (Holdings) Limited (HKG:131) For Its Upcoming Dividend

Cheuk Nang (Holdings) Limited (HKG:131) stock is about to trade ex-dividend in three days. You will need to purchase shares before the 25th of March to receive the dividend, which will be paid on the 15th of April.

Cheuk Nang (Holdings)'s upcoming dividend is HK$0.02 a share, following on from the last 12 months, when the company distributed a total of HK$0.13 per share to shareholders. Calculating the last year's worth of payments shows that Cheuk Nang (Holdings) has a trailing yield of 4.1% on the current share price of HK$3.04. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Cheuk Nang (Holdings)

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Cheuk Nang (Holdings) lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Cheuk Nang (Holdings) 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. What's good is that dividends were well covered by free cash flow, with the company paying out 7.1% of its cash flow last year.

Click here to see how much of its profit Cheuk Nang (Holdings) 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. Cheuk Nang (Holdings) 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. Cheuk Nang (Holdings) has delivered 7.6% dividend growth per year on average over the past 10 years.

We update our analysis on Cheuk Nang (Holdings) every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Has Cheuk Nang (Holdings) got what it takes to maintain its dividend payments? It's hard to get used to Cheuk Nang (Holdings) paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Cheuk Nang (Holdings) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Cheuk Nang (Holdings) don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 3 warning signs for Cheuk Nang (Holdings) (1 is concerning!) that deserve your attention before investing in 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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