It Might Not Be A Great Idea To Buy Kingmaker Footwear Holdings Limited (HKG:1170) For Its Next Dividend

Readers hoping to buy Kingmaker Footwear Holdings Limited (HKG:1170) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase Kingmaker Footwear Holdings' shares before the 30th of December in order to be eligible for the dividend, which will be paid on the 28th of January.

The company's next dividend payment will be HK$0.02 per share, on the back of last year when the company paid a total of HK$0.04 to shareholders. Looking at the last 12 months of distributions, Kingmaker Footwear Holdings has a trailing yield of approximately 7.8% on its current stock price of HK$0.51. If you buy this business for its dividend, you should have an idea of whether Kingmaker Footwear Holdings's dividend is reliable and sustainable. So we need to investigate whether Kingmaker Footwear Holdings can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kingmaker Footwear Holdings lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Kingmaker Footwear Holdings 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. Luckily it paid out just 8.8% of its free cash flow last year.

View our latest analysis for Kingmaker Footwear Holdings

Click here to see how much of its profit Kingmaker Footwear 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Kingmaker Footwear Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kingmaker Footwear Holdings's dividend payments per share have declined at 7.8% per year on average over the past 10 years, which is uninspiring. 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.

Get our latest analysis on Kingmaker Footwear Holdings's balance sheet health here.

Final Takeaway

Should investors buy Kingmaker Footwear Holdings 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. Bottom line: Kingmaker Footwear Holdings has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Kingmaker Footwear Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for Kingmaker Footwear Holdings (2 are a bit concerning!) that you ought to be aware of before buying the shares.

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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.