Dividend Investors: Don't Be Too Quick To Buy Mi Ming Mart Holdings Limited (HKG:8473) For Its Upcoming Dividend

Mi Ming Mart Holdings Limited (HKG:8473) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. Accordingly, Mi Ming Mart Holdings investors that purchase the stock on or after the 14th of October will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be HK$0.025 per share, on the back of last year when the company paid a total of HK$0.012 to shareholders. Based on the last year's worth of payments, Mi Ming Mart Holdings stock has a trailing yield of around 7.4% on the current share price of HK$0.163. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Mi Ming Mart Holdings has been able to grow its dividends, or if the dividend might be cut.

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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. An unusually high payout ratio of 265% of its profit suggests something is happening other than the usual distribution of profits to shareholders. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Mi Ming Mart Holdings's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

View our latest analysis for Mi Ming Mart Holdings

Click here to see how much of its profit Mi Ming Mart Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Mi Ming Mart Holdings's 20% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mi Ming Mart Holdings's dividend payments per share have declined at 5.6% per year on average over the past seven years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Has Mi Ming Mart Holdings got what it takes to maintain its dividend payments? It's never fun to see a company's earnings per share in retreat. What's more, Mi Ming Mart Holdings is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Mi Ming Mart Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Mi Ming Mart Holdings is showing 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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.