Readers hoping to buy Associated International Hotels Limited (HKG:105) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Associated International Hotels' shares on or after the 12th of December, you won't be eligible to receive the dividend, when it is paid on the 5th of January.

The company's next dividend payment will be HK$0.11 per share, and in the last 12 months, the company paid a total of HK$0.32 per share. Last year's total dividend payments show that Associated International Hotels has a trailing yield of 3.5% on the current share price of HK$9.15. 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 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 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. Associated International Hotels's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Associated International Hotels didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.

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?

Companies with falling earnings are riskier for dividend shareholders. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Associated International Hotels has seen its dividend decline 9.1% 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.

Remember, you can always get a snapshot of Associated International Hotels's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Associated International Hotels? It's hard to get used to Associated International Hotels paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

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 Associated International Hotels. To that end, you should learn about the 2 warning signs we've spotted with Associated International Hotels (including 1 which is a bit concerning).

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.