Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Kam Hing International Holdings Limited (HKG:2307) is about to go ex-dividend in just 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. 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. Therefore, if you purchase Kam Hing International Holdings' shares on or after the 8th of June, you won't be eligible to receive the dividend, when it is paid on the 8th of July.

The company's next dividend payment will be HK$0.013 per share. Last year, in total, the company distributed HK$0.013 to shareholders. Based on the last year's worth of payments, Kam Hing International Holdings has a trailing yield of 4.0% on the current stock price of HK$0.325. If you buy this business for its dividend, you should have an idea of whether Kam Hing International Holdings's dividend is reliable and sustainable. So we need to investigate whether Kam Hing International Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Kam Hing 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. Kam Hing International Holdings paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Kam Hing International Holdings paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Click here to see how much of its profit Kam Hing 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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Kam Hing International Holdings's 9.3% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kam Hing International Holdings's dividend payments per share have declined at 8.9% per year on average over the past 10 years, which is uninspiring. 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.

To Sum It Up

Is Kam Hing International Holdings worth buying for its dividend? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. We think this is a pretty attractive combination, and would be interested in investigating Kam Hing International Holdings more closely.

While it's tempting to invest in Kam Hing International Holdings for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 4 warning signs for Kam Hing International Holdings (of which 2 are a bit concerning!) you should know about.

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.

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.