Town Ray Holdings Limited (HKG:1692) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Town Ray Holdings' shares before the 31st of May in order to be eligible for the dividend, which will be paid on the 14th of June.

The company's upcoming dividend is HK$0.19 a share, following on from the last 12 months, when the company distributed a total of HK$0.30 per share to shareholders. Looking at the last 12 months of distributions, Town Ray Holdings has a trailing yield of approximately 9.4% on its current stock price of HK$3.2. If you buy this business for its dividend, you should have an idea of whether Town Ray Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Town Ray Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 80% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Town Ray Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 45% of its free cash flow in the past 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 Town Ray Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Town Ray Holdings has grown its earnings rapidly, up 25% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last three years, Town Ray Holdings has lifted its dividend by approximately 42% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Has Town Ray Holdings got what it takes to maintain its dividend payments? We like Town Ray Holdings's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Town Ray Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Town Ray Holdings for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Town Ray Holdings that we recommend you consider before investing in the business.

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.