It looks like Mainland Headwear Holdings Limited (HKG:1100) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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 Mainland Headwear Holdings' shares on or after the 14th of September, you won't be eligible to receive the dividend, when it is paid on the 10th of October.

The company's next dividend payment will be HK$0.03 per share, and in the last 12 months, the company paid a total of HK$0.09 per share. Based on the last year's worth of payments, Mainland Headwear Holdings has a trailing yield of 4.9% on the current stock price of HK$1.82. If you buy this business for its dividend, you should have an idea of whether Mainland Headwear Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Mainland Headwear Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Mainland Headwear Holdings

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. Mainland Headwear Holdings has a low and conservative payout ratio of just 22% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 22% of its free cash flow in the last year.

It's positive to see that Mainland Headwear 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 Mainland Headwear Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Mainland Headwear Holdings's earnings per share have risen 18% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Mainland Headwear Holdings has lifted its dividend by approximately 9.0% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Mainland Headwear Holdings an attractive dividend stock, or better left on the shelf? Mainland Headwear Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

So while Mainland Headwear Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Mainland Headwear Holdings has 2 warning signs we think you should be aware of.

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.