Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AEON Stores (Hong Kong) Co., Limited (HKG:984) is about to trade ex-dividend in the next 4 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. 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. Accordingly, AEON Stores (Hong Kong) investors that purchase the stock on or after the 3rd of October will not receive the dividend, which will be paid on the 28th of October.

The company's upcoming dividend is HK$0.03 a share, following on from the last 12 months, when the company distributed a total of HK$0.05 per share to shareholders. Last year's total dividend payments show that AEON Stores (Hong Kong) has a trailing yield of 4.3% on the current share price of HK$1.15. If you buy this business for its dividend, you should have an idea of whether AEON Stores (Hong Kong)'s dividend is reliable and sustainable. As a result, readers should always check whether AEON Stores (Hong Kong) has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for AEON Stores (Hong Kong)

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. AEON Stores (Hong Kong) reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. 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. The good news is it paid out just 1.7% of its free cash flow in the last year.

Click here to see how much of its profit AEON Stores (Hong Kong) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. AEON Stores (Hong Kong) reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AEON Stores (Hong Kong) has seen its dividend decline 22% per annum on average over the past 10 years, which is not great to see. 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.

Get our latest analysis on AEON Stores (Hong Kong)'s balance sheet health here.

To Sum It Up

Has AEON Stores (Hong Kong) got what it takes to maintain its dividend payments? It's hard to get used to AEON Stores (Hong Kong) paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in AEON Stores (Hong Kong) and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 3 warning signs we've spotted with AEON Stores (Hong Kong) (including 1 which is concerning).

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.