Emperor International Holdings Limited (HKG:163) is about to trade ex-dividend in the next 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 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. Accordingly, Emperor International Holdings investors that purchase the stock on or after the 25th of August will not receive the dividend, which will be paid on the 14th of September.

The company's next dividend payment will be HK$0.016 per share, and in the last 12 months, the company paid a total of HK$0.032 per share. Based on the last year's worth of payments, Emperor International Holdings has a trailing yield of 4.4% on the current stock price of HK$0.73. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Emperor International 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. Emperor International Holdings paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. It paid out 8.9% of its free cash flow as dividends last year, which is conservatively low.

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

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. Emperor International Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Emperor International Holdings's dividend payments per share have declined at 11% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Remember, you can always get a snapshot of Emperor International Holdings's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Emperor International Holdings for the upcoming dividend? It's hard to get used to Emperor International Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Emperor International Holdings 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 Emperor International Holdings don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 3 warning signs for Emperor International Holdings (2 can't be ignored!) that deserve your attention before investing in the shares.

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.