It Might Not Be A Great Idea To Buy Sun Hung Kai & Co. Limited (HKG:86) For Its Next Dividend

Sun Hung Kai & Co. Limited (HKG:86) is about to trade ex-dividend in the next 3 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Sun Hung Kai's shares on or after the 2nd of May, you won't be eligible to receive the dividend, when it is paid on the 23rd of May.

The company's next dividend payment will be HK$0.14 per share, and in the last 12 months, the company paid a total of HK$0.26 per share. Based on the last year's worth of payments, Sun Hung Kai stock has a trailing yield of around 8.9% on the current share price of HK$2.93. 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 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. Sun Hung Kai distributed an unsustainably high 135% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

View our latest analysis for Sun Hung Kai

Click here to see how much of its profit Sun Hung Kai paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Sun Hung Kai's earnings per share have fallen at approximately 29% a year over the previous 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. Since the start of our data, 10 years ago, Sun Hung Kai has lifted its dividend by approximately 0.8% a year on average.

To Sum It Up

Should investors buy Sun Hung Kai for the upcoming dividend? Earnings per share are in decline and Sun Hung Kai is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Although, if you're still interested in Sun Hung Kai and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for Sun Hung Kai 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.