Don't Race Out To Buy Emperor International Holdings Limited (HKG:163) 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 Emperor International Holdings Limited (HKG:163) is about to go ex-dividend in just four days. You will need to purchase shares before the 8th of December to receive the dividend, which will be paid on the 18th of December.

Emperor International Holdings's upcoming dividend is HK$0.012 a share, following on from the last 12 months, when the company distributed a total of HK$0.07 per share to shareholders. Based on the last year's worth of payments, Emperor International Holdings has a trailing yield of 6.2% on the current stock price of HK$1.13. 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! So we need to investigate whether Emperor International Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Emperor International Holdings

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. Emperor International Holdings's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. 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 Emperor International 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. Over the last year, it paid out dividends equivalent to 297% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Click here to see how much of its profit Emperor International 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Emperor International 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. Emperor International Holdings's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Get our latest analysis on Emperor International Holdings's balance sheet health here.

Final Takeaway

Should investors buy Emperor International Holdings for the upcoming dividend? It's hard to get used to Emperor International Holdings paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Emperor International Holdings.

With that in mind though, if the poor dividend characteristics of Emperor International 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 Emperor International Holdings (2 are significant!) 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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