Should Income Investors Look At Guangdong Investment Limited (HKG:270) Before Its Ex-Dividend?

It looks like Guangdong Investment Limited (HKG:270) is about to go ex-dividend in the next 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Guangdong Investment's shares on or after the 25th of June, you won't be eligible to receive the dividend, when it is paid on the 24th of July.

The company's next dividend payment will be HK$0.0727 per share. Last year, in total, the company distributed HK$0.31 to shareholders. Based on the last year's worth of payments, Guangdong Investment stock has a trailing yield of around 4.6% on the current share price of HK$6.82. 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! We need to see whether the dividend is covered by earnings and if it's growing.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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. Guangdong Investment paid out a comfortable 50% of its profit last year. A useful secondary check can be to evaluate whether Guangdong Investment generated enough free cash flow to afford its dividend. The good news is it paid out just 25% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for Guangdong Investment

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 Guangdong Investment's earnings per share have been shrinking at 3.9% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Guangdong Investment has delivered an average of 1.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Has Guangdong Investment got what it takes to maintain its dividend payments? Guangdong Investment 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 Guangdong Investment for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Guangdong Investment that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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

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.