Do These 3 Checks Before Buying Peiport Holdings Ltd. (HKG:2885) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Peiport Holdings Ltd. (HKG:2885) is about to trade ex-dividend in the next 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. 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, Peiport Holdings investors that purchase the stock on or after the 20th of June will not receive the dividend, which will be paid on the 8th of July.

The company's next dividend payment will be HK$0.027 per share, on the back of last year when the company paid a total of HK$0.013 to shareholders. Based on the last year's worth of payments, Peiport Holdings stock has a trailing yield of around 3.1% on the current share price of HK$0.435. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Peiport Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Peiport Holdings

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. Peiport Holdings's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. 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. Fortunately, it paid out only 39% of its free cash flow in the past year.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Peiport Holdings reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Peiport Holdings's dividend payments are broadly unchanged compared to where they were three years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Get our latest analysis on Peiport Holdings's balance sheet health here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Peiport Holdings? It's hard to get used to Peiport Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Peiport Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Peiport Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 2 warning signs for Peiport Holdings (1 can't be ignored) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com