Readers hoping to buy Evergreen Products Group Limited (HKG:1962) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. In other words, investors can purchase Evergreen Products Group's shares before the 8th of September in order to be eligible for the dividend, which will be paid on the 27th of September.

The company's next dividend payment will be HK$0.017 per share, on the back of last year when the company paid a total of HK$0.028 to shareholders. Looking at the last 12 months of distributions, Evergreen Products Group has a trailing yield of approximately 3.5% on its current stock price of HK$0.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Evergreen Products Group has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Evergreen Products Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Evergreen Products Group paid out a comfortable 37% of its profit last year. 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. The good news is it paid out just 3.6% of its free cash flow in the last year.

It's positive to see that Evergreen Products Group'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 Evergreen Products Group 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. With that in mind, we're discomforted by Evergreen Products Group's 5.2% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Evergreen Products Group has seen its dividend decline 23% per annum on average over the past four years, which is not great to see. 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.

The Bottom Line

Has Evergreen Products Group got what it takes to maintain its dividend payments? Evergreen Products Group has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, while it has some positive characteristics, we're not inclined to race out and buy Evergreen Products Group today.

In light of that, while Evergreen Products Group has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 4 warning signs for Evergreen Products Group (of which 1 can't be ignored!) you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.