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It Might Not Be A Great Idea To Buy Lippo Limited (HKG:226) For Its Next 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 Lippo Limited (HKG:226) is about to go ex-dividend in just 3 days. Investors can purchase shares before the 5th of September in order to be eligible for this dividend, which will be paid on the 26th of September.

Lippo's upcoming dividend is HK$0.05 a share, following on from the last 12 months, when the company distributed a total of HK$0.08 per share to shareholders. Based on the last year's worth of payments, Lippo has a trailing yield of 3.0% on the current stock price of HK$2.63. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Lippo

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. Lippo reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Lippo didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.

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

SEHK:226 Historical Dividend Yield, September 1st 2019

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. Lippo reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Lippo has increased its dividend at approximately 2.9% a year on average.

We update our analysis on Lippo every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Should investors buy Lippo for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Want to learn more about Lippo'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.