CNQC International Holdings Limited (HKG:1240) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase CNQC International Holdings' shares before the 1st of June in order to receive the dividend, which the company will pay on the 29th of June.

The company's next dividend payment will be HK$0.06 per share, and in the last 12 months, the company paid a total of HK$0.06 per share. Looking at the last 12 months of distributions, CNQC International Holdings has a trailing yield of approximately 9.1% on its current stock price of HK$0.66. 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.

See our latest analysis for CNQC 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. CNQC International Holdings paid out a comfortable 38% of its profit last year. A useful secondary check can be to evaluate whether CNQC International Holdings generated enough free cash flow to afford its dividend. Dividends consumed 57% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit CNQC International Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see CNQC International Holdings's earnings per share have dropped 17% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CNQC International Holdings has seen its dividend decline 11% per annum on average over the past six 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.

The Bottom Line

Is CNQC International Holdings worth buying for its dividend? Earnings per share have fallen significantly, although at least CNQC International Holdings paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in CNQC International Holdings as a potential investment, you should definitely consider some of the risks involved with CNQC International Holdings. To help with this, we've discovered 4 warning signs for CNQC International Holdings (2 can't be ignored!) that you ought to be aware of before buying the shares.

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.