China Everbright Limited (HKG:165) is about to trade ex-dividend in the next 3 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. Accordingly, China Everbright investors that purchase the stock on or after the 28th of May will not receive the dividend, which will be paid on the 14th of June.

The company's next dividend payment will be HK$0.10 per share. Last year, in total, the company distributed HK$0.20 to shareholders. Based on the last year's worth of payments, China Everbright stock has a trailing yield of around 4.4% on the current share price of HK$4.56. If you buy this business for its dividend, you should have an idea of whether China Everbright's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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. China Everbright reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.

Click here to see how much of its profit China Everbright 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. China Everbright 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. China Everbright has seen its dividend decline 4.3% per annum on average over the past 10 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.

Get our latest analysis on China Everbright's balance sheet health here.

To Sum It Up

From a dividend perspective, should investors buy or avoid China Everbright? It's hard to get past the idea of China Everbright paying a dividend despite reporting a loss over the past year - especially when the general trend in its earnings also looks to be negative. China Everbright doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of China Everbright don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 3 warning signs for China Everbright (2 shouldn't be ignored!) that you ought to be aware of before buying 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.