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華爾街日報Here's Why We're Wary Of Buying Associated International Hotels' (HKG:105) For Its Upcoming Dividend
Associated International Hotels Limited (HKG:105) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Associated International Hotels' shares on or after the 12th of December will not receive the dividend, which will be paid on the 8th of January.
The company's upcoming dividend is HK$0.14 a share, following on from the last 12 months, when the company distributed a total of HK$0.35 per share to shareholders. Based on the last year's worth of payments, Associated International Hotels has a trailing yield of 6.7% on the current stock price of HK$5.20. If you buy this business for its dividend, you should have an idea of whether Associated International Hotels's dividend is reliable and sustainable. As a result, readers should always check whether Associated International Hotels has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Associated International Hotels reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. The company paid out 103% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Associated International Hotels does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Check out our latest analysis for Associated International Hotels
Click here to see how much of its profit Associated International Hotels paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Associated International Hotels was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Associated International Hotels has seen its dividend decline 12% per annum on average over the past 10 years, which is not great to see.
Get our latest analysis on Associated International Hotels's balance sheet health here.
To Sum It Up
Should investors buy Associated International Hotels for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." Bottom line: Associated International Hotels has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of Associated International Hotels don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 1 warning sign for Associated International Hotels that we recommend you consider before investing in the business.
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.