Should Income Investors Look At Goodbaby International Holdings Limited (HKG:1086) Before Its Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Goodbaby International Holdings Limited (HKG:1086) is about to go ex-dividend in just 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. This means that investors who purchase Goodbaby International Holdings' shares on or after the 5th of June will not receive the dividend, which will be paid on the 23rd of June.

The company's next dividend payment will be HK$0.05 per share, on the back of last year when the company paid a total of HK$0.05 to shareholders. Looking at the last 12 months of distributions, Goodbaby International Holdings has a trailing yield of approximately 5.4% on its current stock price of HK$0.92. 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 Goodbaby International Holdings has been able to grow its dividends, or if the dividend might be cut.

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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. That's why it's good to see Goodbaby International Holdings paying out a modest 38% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 14% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for Goodbaby International Holdings

Click here to see how much of its profit Goodbaby International 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Goodbaby International Holdings's earnings per share have been shrinking at 3.2% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Goodbaby International Holdings dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

Final Takeaway

Is Goodbaby International Holdings an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Goodbaby International Holdings today.

In light of that, while Goodbaby International Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Goodbaby International Holdings that we recommend you consider before investing in the business.

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.