Why It Might Not Make Sense To Buy Computer And Technologies Holdings Limited (HKG:46) For Its Upcoming Dividend

Readers hoping to buy Computer And Technologies Holdings Limited (HKG:46) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Computer And Technologies Holdings' shares on or after the 28th of August, you won't be eligible to receive the dividend, when it is paid on the 23rd of September.

The company's next dividend payment will be HK$0.06 per share, and in the last 12 months, the company paid a total of HK$0.09 per share. Last year's total dividend payments show that Computer And Technologies Holdings has a trailing yield of 6.8% on the current share price of HK$1.33. If you buy this business for its dividend, you should have an idea of whether Computer And Technologies Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Computer And Technologies Holdings paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Computer And Technologies Holdings generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 Computer And Technologies Holdings

Click here to see how much of its profit Computer And Technologies 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. With that in mind, we're discomforted by Computer And Technologies Holdings's 18% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Computer And Technologies Holdings's dividend payments per share have declined at 5.6% 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.

To Sum It Up

Has Computer And Technologies Holdings got what it takes to maintain its dividend payments? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Computer And Technologies Holdings.

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 Computer And Technologies Holdings. Every company has risks, and we've spotted 3 warning signs for Computer And Technologies Holdings (of which 1 is a bit unpleasant!) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.