Readers hoping to buy HK Electric Investments and HK Electric Investments Limited (HKG:2638) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day 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. Meaning, you will need to purchase HK Electric Investments and HK Electric Investments' shares before the 16th of August to receive the dividend, which will be paid on the 26th of August.

The company's next dividend payment will be HK$0.16 per share, and in the last 12 months, the company paid a total of HK$0.32 per share. Calculating the last year's worth of payments shows that HK Electric Investments and HK Electric Investments has a trailing yield of 4.5% on the current share price of HK$7.17. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether HK Electric Investments and HK Electric Investments can afford its dividend, and if the dividend could grow.

View our latest analysis for HK Electric Investments and HK Electric Investments

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HK Electric Investments and HK Electric Investments paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether HK Electric Investments and HK Electric Investments generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 208% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

As HK Electric Investments and HK Electric Investments's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that HK Electric Investments and HK Electric Investments's earnings are down 3.9% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the HK Electric Investments and HK Electric Investments dividends are largely the same as they were eight years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

The Bottom Line

From a dividend perspective, should investors buy or avoid HK Electric Investments and HK Electric Investments? Not only are earnings per share declining, but HK Electric Investments and HK Electric Investments is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not that we think HK Electric Investments and HK Electric Investments is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of HK Electric Investments and HK Electric Investments don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for HK Electric Investments and HK Electric Investments that you should be aware of before investing in their shares.

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.