Here's Why We're Wary Of Buying Hiroca Holdings' (TWSE:1338) For Its Upcoming Dividend

Readers hoping to buy Hiroca Holdings Ltd. (TWSE:1338) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Hiroca Holdings' shares before the 17th of July to receive the dividend, which will be paid on the 2nd of August.

The company's next dividend payment will be NT$0.50 per share, on the back of last year when the company paid a total of NT$0.50 to shareholders. Based on the last year's worth of payments, Hiroca Holdings has a trailing yield of 1.5% on the current stock price of NT$33.00. If you buy this business for its dividend, you should have an idea of whether Hiroca Holdings's dividend is reliable and sustainable. So we need to investigate whether Hiroca Holdings can afford its dividend, and if the dividend could grow.

See our latest analysis for Hiroca Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hiroca Holdings 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 Hiroca Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Hiroca 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hiroca Holdings's dividend payments per share have declined at 9.5% per year on average over the past 10 years, which is uninspiring. 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.

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

Final Takeaway

Has Hiroca Holdings got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Hiroca Holdings is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Hiroca Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Hiroca Holdings is showing 2 warning signs in our investment analysis, and 1 of those is significant...

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