It looks like K. Wah International Holdings Limited (HKG:173) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. In other words, investors can purchase K. Wah International Holdings' shares before the 9th of September in order to be eligible for the dividend, which will be paid on the 26th of October.

The company's next dividend payment will be HK$0.07 per share. Last year, in total, the company distributed HK$0.21 to shareholders. Based on the last year's worth of payments, K. Wah International Holdings has a trailing yield of 7.2% on the current stock price of HK$2.92. 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.

See our latest analysis for K. Wah International Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. K. Wah International Holdings paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether K. Wah International Holdings generated enough free cash flow to afford its dividend. It paid out 8.9% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that K. Wah International 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 K. Wah International Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that K. Wah International Holdings's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. K. Wah International Holdings has delivered an average of 2.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

From a dividend perspective, should investors buy or avoid K. Wah International Holdings? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but K. Wah International Holdings is halfway there. K. Wah International Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while K. Wah International Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for K. Wah International Holdings that we strongly recommend you have a look at before investing in the company.

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.