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

It looks like Luk Fook Holdings (International) Limited (HKG:590) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Luk Fook Holdings (International)'s shares before the 10th of December in order to receive the dividend, which the company will pay on the 24th of December.

The company's next dividend payment will be HK$0.55 per share, and in the last 12 months, the company paid a total of HK$1.36 per share. Calculating the last year's worth of payments shows that Luk Fook Holdings (International) has a trailing yield of 9.2% on the current share price of HK$14.80. 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 Luk Fook Holdings (International) can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Luk Fook Holdings (International)

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. Luk Fook Holdings (International) paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Luk Fook Holdings (International) generated enough free cash flow to afford its dividend. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Luk Fook Holdings (International)'s earnings per share have been shrinking at 3.3% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Luk Fook Holdings (International) has delivered an average of 0.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Is Luk Fook Holdings (International) an attractive dividend stock, or better left on the shelf? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Luk Fook Holdings (International) despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 1 warning sign with Luk Fook Holdings (International) and understanding them should be part of your investment process.

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.