Don't Race Out To Buy Pokfulam Development Company Limited (HKG:225) Just Because It's Going Ex-Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Pokfulam Development Company Limited (HKG:225) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Pokfulam Development's shares on or after the 12th of June will not receive the dividend, which will be paid on the 2nd of July.
The company's upcoming dividend is HK$0.04 a share, following on from the last 12 months, when the company distributed a total of HK$0.36 per share to shareholders. Looking at the last 12 months of distributions, Pokfulam Development has a trailing yield of approximately 6.6% on its current stock price of HK$5.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. Pokfulam Development paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Pokfulam Development 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. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.
See our latest analysis for Pokfulam Development
Click here to see how much of its profit Pokfulam Development paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Pokfulam Development 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Pokfulam Development has delivered 2.9% dividend growth per year on average over the past 10 years.
We update our analysis on Pokfulam Development every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Should investors buy Pokfulam Development for the upcoming dividend? It's hard to get used to Pokfulam Development 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 that we think Pokfulam Development is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in Pokfulam Development and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 3 warning signs for Pokfulam Development (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.
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.