Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sino Hotels (Holdings) Limited (HKG:1221) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Sino Hotels (Holdings)'s shares before the 25th of October in order to receive the dividend, which the company will pay on the 3rd of December.

The company's next dividend payment will be HK$0.015 per share, and in the last 12 months, the company paid a total of HK$0.03 per share. Based on the last year's worth of payments, Sino Hotels (Holdings) has a trailing yield of 2.1% on the current stock price of HK$1.44. If you buy this business for its dividend, you should have an idea of whether Sino Hotels (Holdings)'s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Sino Hotels (Holdings) paid out 53% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 2.7% of its free cash flow last year.

It's positive to see that Sino Hotels (Holdings)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Sino Hotels (Holdings)'s earnings per share have dropped 21% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sino Hotels (Holdings) has seen its dividend decline 9.3% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Has Sino Hotels (Holdings) got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Sino Hotels (Holdings)'s dividend merits.

So if you want to do more digging on Sino Hotels (Holdings), you'll find it worthwhile knowing the risks that this stock faces. For example, Sino Hotels (Holdings) has 2 warning signs (and 1 which makes us a bit uncomfortable) we think 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.