It looks like Tradelink Electronic Commerce Limited (HKG:536) is about to go ex-dividend in the next 3 days. 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 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. Thus, you can purchase Tradelink Electronic Commerce's shares before the 21st of September in order to receive the dividend, which the company will pay on the 6th of October.

The company's next dividend payment will be HK$0.037 per share. Last year, in total, the company distributed HK$0.084 to shareholders. Based on the last year's worth of payments, Tradelink Electronic Commerce stock has a trailing yield of around 8.9% on the current share price of HK$0.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Tradelink Electronic Commerce has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Tradelink Electronic Commerce

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. It paid out 87% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Tradelink Electronic Commerce generated enough free cash flow to afford its dividend. Tradelink Electronic Commerce paid out more free cash flow than it generated - 119%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Tradelink Electronic Commerce does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Tradelink Electronic Commerce paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Tradelink Electronic Commerce's ability to maintain its 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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Tradelink Electronic Commerce's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings have been growing somewhat, 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. Tradelink Electronic Commerce's dividend payments per share have declined at 2.0% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Should investors buy Tradelink Electronic Commerce for the upcoming dividend? In addition to earnings being flat, Tradelink Electronic Commerce is paying out a reasonable percentage of its earnings as profits. However, the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Tradelink Electronic Commerce despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 3 warning signs with Tradelink Electronic Commerce (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.