Oriental Explorer Holdings Limited (HKG:430) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Meaning, you will need to purchase Oriental Explorer Holdings' shares before the 21st of September to receive the dividend, which will be paid on the 19th of October.

The company's upcoming dividend is HK$0.008 a share, following on from the last 12 months, when the company distributed a total of HK$0.02 per share to shareholders. Based on the last year's worth of payments, Oriental Explorer Holdings stock has a trailing yield of around 5.9% on the current share price of HK$0.34. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Oriental Explorer 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. Last year, Oriental Explorer Holdings paid out 95% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Click here to see how much of its profit Oriental Explorer Holdings 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. Oriental Explorer Holdings's earnings per share have plummeted approximately 51% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Oriental Explorer Holdings dividends are largely the same as they were two years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

The Bottom Line

Is Oriental Explorer Holdings worth buying for its dividend? Not only are earnings per share shrinking, but Oriental Explorer Holdings is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Oriental Explorer Holdings 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.

Although, if you're still interested in Oriental Explorer Holdings and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 4 warning signs with Oriental Explorer Holdings and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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.