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Don't Race Out To Buy HK Electric Investments and HK Electric Investments Limited (HKG:2638) Just Because It's Going Ex-Dividend

Simply Wall St

HK Electric Investments and HK Electric Investments Limited (HKG:2638) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 31st of March in order to be eligible for this dividend, which will be paid on the 14th of April.

HK Electric Investments and HK Electric Investments's upcoming dividend is HK$0.16 a share, following on from the last 12 months, when the company distributed a total of HK$0.32 per share to shareholders. Based on the last year's worth of payments, HK Electric Investments and HK Electric Investments has a trailing yield of 4.3% on the current stock price of HK$7.49. If you buy this business for its dividend, you should have an idea of whether HK Electric Investments and HK Electric Investments's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for HK Electric Investments and HK Electric Investments

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. HK Electric Investments and HK Electric Investments paid out 122% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

SEHK:2638 Historical Dividend Yield March 26th 2020

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. 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 HK Electric Investments and HK Electric Investments's 7.7% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. HK Electric Investments and HK Electric Investments has seen its dividend decline 34% per annum on average over the past six 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

Is HK Electric Investments and HK Electric Investments an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and HK Electric Investments and HK Electric Investments 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. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with HK Electric Investments and HK Electric Investments. Case in point: We've spotted 2 warning signs for HK Electric Investments and HK Electric Investments you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.