Peiport Holdings Ltd. (HKG:2885) is about to trade ex-dividend in the next three days. 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Peiport Holdings' shares before the 16th of June to receive the dividend, which will be paid on the 8th of July.

The company's upcoming dividend is HK$0.013 a share, following on from the last 12 months, when the company distributed a total of HK$0.013 per share to shareholders. Calculating the last year's worth of payments shows that Peiport Holdings has a trailing yield of 3.3% on the current share price of HK$0.415. If you buy this business for its dividend, you should have an idea of whether Peiport Holdings's dividend is reliable and sustainable. So we need to investigate whether Peiport Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Peiport Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Peiport Holdings paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Peiport Holdings generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the last year.

It's positive to see that Peiport Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Peiport Holdings earnings per share are up 3.4% per annum over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Unfortunately Peiport Holdings has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Should investors buy Peiport Holdings for the upcoming dividend? Earnings per share growth has been growing somewhat, and Peiport Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Peiport Holdings is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Peiport Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Peiport Holdings is showing 4 warning signs in our investment analysis, and 1 of those is significant...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.