We Wouldn't Be Too Quick To Buy Luk Fook Holdings (International) Limited (HKG:590) Before It Goes Ex-Dividend

Luk Fook Holdings (International) Limited (HKG:590) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Meaning, you will need to purchase Luk Fook Holdings (International)'s shares before the 22nd of August to receive the dividend, which will be paid on the 6th of September.

The company's next dividend payment will be HK$0.55 per share, on the back of last year when the company paid a total of HK$1.10 to shareholders. Based on the last year's worth of payments, Luk Fook Holdings (International) stock has a trailing yield of around 5.5% on the current share price of HK$19.98. If you buy this business for its dividend, you should have an idea of whether Luk Fook Holdings (International)'s dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Luk Fook Holdings (International)

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Luk Fook Holdings (International) paid out more than half (50%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 52% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Luk Fook Holdings (International)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Luk Fook Holdings (International)'s flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Luk Fook Holdings (International) has delivered an average of 2.5% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is Luk Fook Holdings (International) an attractive dividend stock, or better left on the shelf? While earnings per share are flat, at least Luk Fook Holdings (International) has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not that we think Luk Fook Holdings (International) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Luk Fook Holdings (International). To help with this, we've discovered 1 warning sign for Luk Fook Holdings (International) that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.