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 Eagle Nice (International) Holdings Limited (HKG:2368) is about to go ex-dividend in just 3 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 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 Eagle Nice (International) Holdings' shares on or after the 25th of August, you won't be eligible to receive the dividend, when it is paid on the 15th of September.

The company's upcoming dividend is HK$0.14 a share, following on from the last 12 months, when the company distributed a total of HK$0.36 per share to shareholders. Based on the last year's worth of payments, Eagle Nice (International) Holdings has a trailing yield of 8.2% on the current stock price of HK$4.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Eagle Nice (International) Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Eagle Nice (International) Holdings

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. Eagle Nice (International) Holdings paid out more than half (70%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 350% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Eagle Nice (International) Holdings intends to continue funding this dividend, or if it could be forced to cut the payment.

Eagle Nice (International) Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Eagle Nice (International) Holdings's ability to maintain its dividend.

Click here to see how much of its profit Eagle Nice (International) Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Eagle Nice (International) Holdings's earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Eagle Nice (International) Holdings has increased its dividend at approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Eagle Nice (International) Holdings? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Eagle Nice (International) Holdings paid out a much higher percentage of its free cash flow, which makes us uncomfortable. To summarise, Eagle Nice (International) Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in Eagle Nice (International) Holdings as a potential investment, you should definitely consider some of the risks involved with Eagle Nice (International) Holdings. For example - Eagle Nice (International) Holdings has 1 warning sign we think you should be aware of.

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