Do These 3 Checks Before Buying Public Financial Holdings Limited (HKG:626) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Public Financial Holdings Limited (HKG:626) is about to trade ex-dividend in the next four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Public Financial Holdings' shares before the 26th of January in order to receive the dividend, which the company will pay on the 26th of February.

The company's next dividend payment will be HK$0.05 per share. Last year, in total, the company distributed HK$0.07 to shareholders. Last year's total dividend payments show that Public Financial Holdings has a trailing yield of 4.6% on the current share price of HK$1.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Public Financial Holdings has been able to grow its dividends, or if the dividend might be cut.

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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. Last year Public Financial Holdings paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

View our latest analysis for Public Financial Holdings

Click here to see how much of its profit Public Financial Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Public Financial Holdings's 27% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Public Financial Holdings's dividend payments per share have declined at 7.9% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Is Public Financial Holdings worth buying for its dividend? Not only are earnings per share shrinking, but Public Financial Holdings is paying out a disconcertingly 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. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in Public Financial Holdings and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 3 warning signs for Public Financial Holdings that we strongly recommend you have a look at before investing in the company.

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.