Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AEON Stores (Hong Kong) Co., Limited (HKG:984) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 AEON Stores (Hong Kong)'s shares before the 7th of June to receive the dividend, which will be paid on the 28th of June.
The company's next dividend payment will be HK$0.02 per share, and in the last 12 months, the company paid a total of HK$0.04 per share. Looking at the last 12 months of distributions, AEON Stores (Hong Kong) has a trailing yield of approximately 3.1% on its current stock price of HK$1.27. 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 AEON Stores (Hong Kong) can afford its dividend, and if the dividend could grow.
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. AEON Stores (Hong Kong) reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 2.4% of its free cash flow last year.
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. AEON Stores (Hong Kong) was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AEON Stores (Hong Kong) has seen its dividend decline 23% per annum on average over the past 10 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.
Remember, you can always get a snapshot of AEON Stores (Hong Kong)'s financial health, by checking our visualisation of its financial health, here.
The Bottom Line
Is AEON Stores (Hong Kong) worth buying for its dividend? It's hard to get used to AEON Stores (Hong Kong) paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of AEON Stores (Hong Kong).
With that in mind though, if the poor dividend characteristics of AEON Stores (Hong Kong) don't faze you, it's worth being mindful of the risks involved with this business. For example, AEON Stores (Hong Kong) has 3 warning signs (and 1 which is significant) we think you should know about.
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.