TK Group (Holdings) Limited (HKG:2283) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, TK Group (Holdings) investors that purchase the stock on or after the 2nd of June will not receive the dividend, which will be paid on the 23rd of June.

The company's next dividend payment will be HK$0.086 per share, and in the last 12 months, the company paid a total of HK$0.11 per share. Based on the last year's worth of payments, TK Group (Holdings) has a trailing yield of 7.3% on the current stock price of HK$1.56. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether TK Group (Holdings) can afford its dividend, and if the dividend could grow.

Check out our latest analysis for TK Group (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. Fortunately TK Group (Holdings)'s payout ratio is modest, at just 42% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by TK Group (Holdings)'s 5.6% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last nine years, TK Group (Holdings) has lifted its dividend by approximately 23% a year on average.

The Bottom Line

Has TK Group (Holdings) got what it takes to maintain its dividend payments? TK Group (Holdings) has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, TK Group (Holdings) looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while TK Group (Holdings) has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for TK Group (Holdings) that we recommend you consider before investing in the business.

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.