Hong Kong Economic Times Holdings Limited (HKG:423) stock is about to trade ex-dividend in three 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Hong Kong Economic Times Holdings' shares on or after the 18th of August, you won't be eligible to receive the dividend, when it is paid on the 9th of September.

The company's upcoming dividend is HK$0.065 a share, following on from the last 12 months, when the company distributed a total of HK$0.095 per share to shareholders. Based on the last year's worth of payments, Hong Kong Economic Times Holdings stock has a trailing yield of around 7.8% on the current share price of HK$1.22. If you buy this business for its dividend, you should have an idea of whether Hong Kong Economic Times Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Hong Kong Economic Times 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. Hong Kong Economic Times Holdings distributed an unsustainably high 124% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 85% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while Hong Kong Economic Times Holdings's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Hong Kong Economic Times Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Hong Kong Economic Times Holdings, with earnings per share up 2.8% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hong Kong Economic Times Holdings's dividend payments per share have declined at 7.6% per year on average over the past 10 years, which is uninspiring. Hong Kong Economic Times Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Hong Kong Economic Times Holdings an attractive dividend stock, or better left on the shelf? While earnings per share have been growing slowly, Hong Kong Economic Times Holdings is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Hong Kong Economic Times Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 3 warning signs for Hong Kong Economic Times Holdings that we strongly recommend you have a look at before investing in the company.

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.