Should Income Investors Look At BetterLife Holding Limited (HKG:6909) Before Its Ex-Dividend?

BetterLife Holding Limited (HKG:6909) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase BetterLife Holding's shares on or after the 3rd of May, you won't be eligible to receive the dividend, when it is paid on the 13th of August.

The company's next dividend payment will be CN¥0.03 per share, on the back of last year when the company paid a total of CN¥0.03 to shareholders. Looking at the last 12 months of distributions, BetterLife Holding has a trailing yield of approximately 5.0% on its current stock price of HK$0.65. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for BetterLife Holding

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. That's why it's good to see BetterLife Holding paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether BetterLife Holding generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.2% of its cash flow last year.

It's positive to see that BetterLife Holding'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 how much of its profit BetterLife Holding 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. BetterLife Holding's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 44% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. BetterLife Holding has seen its dividend decline 63% per annum on average over the past two years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is BetterLife Holding worth buying for its dividend? BetterLife Holding has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

While it's tempting to invest in BetterLife Holding for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 5 warning signs for BetterLife Holding that we strongly recommend you have a look at before investing in the company.

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.