Readers hoping to buy Tsim Sha Tsui Properties Limited (HKG:247) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day 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 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. Meaning, you will need to purchase Tsim Sha Tsui Properties' shares before the 25th of October to receive the dividend, which will be paid on the 3rd of December.

The company's upcoming dividend is HK$0.43 a share, following on from the last 12 months, when the company distributed a total of HK$0.58 per share to shareholders. Based on the last year's worth of payments, Tsim Sha Tsui Properties stock has a trailing yield of around 3.1% on the current share price of HK$18.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Tsim Sha Tsui Properties can afford its dividend, and if the dividend could grow.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Tsim Sha Tsui Properties paying out a modest 48% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 0.5% of its free cash flow in the last year.

It's positive to see that Tsim Sha Tsui Properties'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 Tsim Sha Tsui Properties 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Tsim Sha Tsui Properties's earnings per share have dropped 10% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

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, Tsim Sha Tsui Properties has increased its dividend at approximately 1.5% a year on average.

The Bottom Line

Is Tsim Sha Tsui Properties worth buying for its dividend? Tsim Sha Tsui Properties has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, Tsim Sha Tsui Properties looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Tsim Sha Tsui Properties is facing. For example, we've found 1 warning sign for Tsim Sha Tsui Properties 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.