Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Eagle Nice (International) Holdings Limited (HKG:2368) is about to trade ex-dividend in the next four 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Eagle Nice (International) Holdings' shares before the 5th of December in order to be eligible for the dividend, which will be paid on the 22nd of December.

The company's upcoming dividend is HK$0.30 a share, following on from the last 12 months, when the company distributed a total of HK$0.36 per share to shareholders. Based on the last year's worth of payments, Eagle Nice (International) Holdings has a trailing yield of 8.0% on the current stock price of HK$4.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Eagle Nice (International) Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Eagle Nice (International) Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Eagle Nice (International) Holdings paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out an unsustainably high 350% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While Eagle Nice (International) Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Eagle Nice (International) Holdings's ability to maintain its dividend.

Click here to see how much of its profit Eagle Nice (International) Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Eagle Nice (International) Holdings's earnings per share have been growing at 16% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Eagle Nice (International) Holdings has increased its dividend at approximately 9.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Eagle Nice (International) Holdings got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 350% of its cashflow, which is uncomfortably high. All things considered, we are not particularly enthused about Eagle Nice (International) Holdings from a dividend perspective.

If you want to look further into Eagle Nice (International) Holdings, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 1 warning sign for Eagle Nice (International) Holdings you should know about.

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.