Don't Buy Hi-Lex Corporation (TSE:7279) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hi-Lex Corporation (TSE:7279) is about to go ex-dividend in just four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Hi-Lex investors that purchase the stock on or after the 30th of October will not receive the dividend, which will be paid on the 29th of January.

The company's next dividend payment will be JP¥20.00 per share. Last year, in total, the company distributed JP¥40.00 to shareholders. Last year's total dividend payments show that Hi-Lex has a trailing yield of 2.6% on the current share price of JP¥1512.00. If you buy this business for its dividend, you should have an idea of whether Hi-Lex's dividend is reliable and sustainable. As a result, readers should always check whether Hi-Lex has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Hi-Lex

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. Hi-Lex reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 11% of its cash flow last year.

Click here to see how much of its profit Hi-Lex 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hi-Lex 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. Hi-Lex has seen its dividend decline 0.9% per annum on average over the past 10 years, which is not great to see.

We update our analysis on Hi-Lex every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Has Hi-Lex got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Hi-Lex don't faze you, it's worth being mindful of the risks involved with this business. We've identified 2 warning signs with Hi-Lex (at least 1 which is significant), and understanding these should be part of your investment process.

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.