Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ming Fai International Holdings Limited (HKG:3828) is about to trade ex-dividend in the next four 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. Thus, you can purchase Ming Fai International Holdings' shares before the 29th of May in order to receive the dividend, which the company will pay on the 9th of June.

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$0.04 per share to shareholders. Looking at the last 12 months of distributions, Ming Fai International Holdings has a trailing yield of approximately 6.3% on its current stock price of HK$0.63. If you buy this business for its dividend, you should have an idea of whether Ming Fai International Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Ming Fai 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. That's why it's good to see Ming Fai International Holdings paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Ming Fai International Holdings generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 6.9% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Ming Fai 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Ming Fai International Holdings's earnings per share have dropped 7.3% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

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, Ming Fai International Holdings has increased its dividend at approximately 1.3% a year on average.

The Bottom Line

Is Ming Fai International Holdings worth buying for its dividend? Ming Fai International Holdings 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. To summarise, Ming Fai International Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 3 warning signs for Ming Fai International Holdings (1 shouldn't be ignored!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.