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Here's Why We're Wary Of Buying Victory Securities (Holdings) Company Limited's (HKG:8540) For Its Upcoming Dividend

Simply Wall St

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 Victory Securities (Holdings) Company Limited (HKG:8540) is about to go ex-dividend in just 4 days. You can purchase shares before the 19th of August in order to receive the dividend, which the company will pay on the 13th of September.

Victory Securities (Holdings)'s next dividend payment will be HK$0.012 per share, on the back of last year when the company paid a total of HK$0.03 to shareholders. Looking at the last 12 months of distributions, Victory Securities (Holdings) has a trailing yield of approximately 2.4% on its current stock price of HK$1.25. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Victory Securities (Holdings)

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. Victory Securities (Holdings) paid out 105% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Victory Securities (Holdings) paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

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.

Click here to see how much of its profit Victory Securities (Holdings) paid out over the last 12 months.

SEHK:8540 Historical Dividend Yield, August 14th 2019

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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, it's good to see earnings have grown 5.1% on last year.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

Victory Securities (Holdings) also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Unfortunately Victory Securities (Holdings) has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Is Victory Securities (Holdings) an attractive dividend stock, or better left on the shelf? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 1.05449 of last year's earnings. 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.

Want to learn more about Victory Securities (Holdings)'s dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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.

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.

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. Thank you for reading.