Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AV Concept Holdings Limited (HKG:595) is about to trade ex-dividend in the next 4 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. 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. In other words, investors can purchase AV Concept Holdings' shares before the 6th of September in order to be eligible for the dividend, which will be paid on the 26th of September.

The company's next dividend payment will be HK$0.04 per share, and in the last 12 months, the company paid a total of HK$0.05 per share. Last year's total dividend payments show that AV Concept Holdings has a trailing yield of 9.1% on the current share price of HK$0.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether AV Concept Holdings can afford its dividend, and if the dividend could grow.

See our latest analysis for AV Concept 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. AV Concept Holdings has a low and conservative payout ratio of just 20% of its income after tax. 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. Fortunately, it paid out only 47% of its free cash flow in the past year.

It's positive to see that AV Concept Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit AV Concept 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that AV Concept Holdings's earnings are down 3.1% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, AV Concept Holdings has increased its dividend at approximately 1.8% a year on average.

Final Takeaway

Has AV Concept Holdings got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while AV Concept Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for AV Concept Holdings you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.