Tradelink Electronic Commerce Limited (HKG:536) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Tradelink Electronic Commerce's shares on or after the 22nd of September, you won't be eligible to receive the dividend, when it is paid on the 7th of October.

The company's next dividend payment will be HK$0.018 per share, on the back of last year when the company paid a total of HK$0.083 to shareholders. Calculating the last year's worth of payments shows that Tradelink Electronic Commerce has a trailing yield of 9.0% on the current share price of HK$0.92. If you buy this business for its dividend, you should have an idea of whether Tradelink Electronic Commerce's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Tradelink Electronic Commerce

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. Tradelink Electronic Commerce paid out 113% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 90% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Cash is slightly more important than profit from a dividend perspective, but given Tradelink Electronic Commerce's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Tradelink Electronic Commerce 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. Tradelink Electronic Commerce's earnings per share have fallen at approximately 6.0% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tradelink Electronic Commerce's dividend payments per share have declined at 0.7% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Is Tradelink Electronic Commerce an attractive dividend stock, or better left on the shelf? Not only are earnings per share declining, but Tradelink Electronic Commerce is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not that we think Tradelink Electronic Commerce is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Tradelink Electronic Commerce. We've identified 4 warning signs with Tradelink Electronic Commerce (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

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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.