Don't Race Out To Buy Luks Group (Vietnam Holdings) Company Limited (HKG:366) Just Because It's Going Ex-Dividend
Luks Group (Vietnam Holdings) Company Limited (HKG:366) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be two business days 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. 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. Accordingly, Luks Group (Vietnam Holdings) investors that purchase the stock on or after the 21st of September will not receive the dividend, which will be paid on the 9th of October.
The company's upcoming dividend is HK$0.02 a share, following on from the last 12 months, when the company distributed a total of HK$0.04 per share to shareholders. Looking at the last 12 months of distributions, Luks Group (Vietnam Holdings) has a trailing yield of approximately 5.0% on its current stock price of HK$0.805. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Luks Group (Vietnam Holdings) has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Luks Group (Vietnam Holdings) distributed an unsustainably high 177% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Luks Group (Vietnam Holdings) generated enough free cash flow to afford its dividend. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Luks Group (Vietnam Holdings)'s dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Check out our latest analysis for Luks Group (Vietnam Holdings)
Click here to see how much of its profit Luks Group (Vietnam Holdings) 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 fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Luks Group (Vietnam Holdings)'s earnings per share have dropped 29% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Luks Group (Vietnam Holdings) has seen its dividend decline 10% 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.
To Sum It Up
Should investors buy Luks Group (Vietnam Holdings) for the upcoming dividend? It's not a great combination to see a company with earnings in decline and paying out 177% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Luks Group (Vietnam Holdings) as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 5 warning signs for Luks Group (Vietnam Holdings) (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.
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.