Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Associated International Hotels Limited (HKG:105) is about to go ex-dividend in just 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Associated International Hotels' shares on or after the 14th of September, you won't be eligible to receive the dividend, when it is paid on the 6th of October.

The company's upcoming dividend is HK$0.21 a share, following on from the last 12 months, when the company distributed a total of HK$0.40 per share to shareholders. Calculating the last year's worth of payments shows that Associated International Hotels has a trailing yield of 3.3% on the current share price of HK$12. If you buy this business for its dividend, you should have an idea of whether Associated International Hotels's dividend is reliable and sustainable. As a result, readers should always check whether Associated International Hotels has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Associated International Hotels

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. Associated International Hotels 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. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Associated International Hotels reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Associated International Hotels has seen its dividend decline 3.3% per annum on average over the past 10 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.

Get our latest analysis on Associated International Hotels's balance sheet health here.

Final Takeaway

Is Associated International Hotels worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Associated International Hotels is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Associated International Hotels as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 2 warning signs for Associated International Hotels (of which 1 is concerning!) you should know about.

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.