Pokfulam Development Company Limited (HKG:225) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. This means that investors who purchase Pokfulam Development's shares on or after the 19th of February will not receive the dividend, which will be paid on the 11th of March.

The company's next dividend payment will be HK$0.34 per share, on the back of last year when the company paid a total of HK$0.38 to shareholders. Calculating the last year's worth of payments shows that Pokfulam Development has a trailing yield of 6.1% on the current share price of HK$6.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Pokfulam Development paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.

Click here to see how much of its profit Pokfulam Development paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Pokfulam Development was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Pokfulam Development has delivered 4.3% dividend growth per year on average over the past 10 years.

We update our analysis on Pokfulam Development every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Pokfulam Development? It's hard to get used to Pokfulam Development paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Pokfulam Development is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Pokfulam Development and want to know more, you'll find it very useful to know what risks this stock faces. For example, Pokfulam Development has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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