Starlite Holdings Limited (HKG:403) is about to trade ex-dividend in the next 3 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 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 Starlite Holdings' shares on or after the 6th of January, you won't be eligible to receive the dividend, when it is paid on the 16th of February.

The company's next dividend payment will be HK$0.01 per share. Last year, in total, the company distributed HK$0.02 to shareholders. Based on the last year's worth of payments, Starlite Holdings has a trailing yield of 8.1% on the current stock price of HK$0.247. 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 Starlite Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Starlite Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Starlite Holdings'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 Starlite Holdings 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. Fortunately, it paid out only 43% of its free cash flow in the past year.

Click here to see how much of its profit Starlite 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. Starlite Holdings was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Starlite Holdings's dividend payments are broadly unchanged compared to where they were 10 years ago.

Get our latest analysis on Starlite Holdings's balance sheet health here.

Final Takeaway

Is Starlite Holdings 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. In summary, it's hard to get excited about Starlite Holdings from a dividend perspective.

On that note, you'll want to research what risks Starlite Holdings is facing. For example, we've found 2 warning signs for Starlite Holdings that we recommend you consider before investing in the business.

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.