Lum Chang Holdings Limited (SGX:L19) stock is about to trade ex-dividend in four 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. 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. Thus, you can purchase Lum Chang Holdings' shares before the 8th of November in order to receive the dividend, which the company will pay on the 22nd of November.

The company's next dividend payment will be S$0.01 per share, on the back of last year when the company paid a total of S$0.018 to shareholders. Based on the last year's worth of payments, Lum Chang Holdings has a trailing yield of 5.5% on the current stock price of SGD0.32. If you buy this business for its dividend, you should have an idea of whether Lum Chang Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Lum Chang Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Lum Chang Holdings reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Lum Chang Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 29% of its free cash flow in the past year.

Click here to see how much of its profit Lum Chang Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Lum Chang Holdings reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lum Chang Holdings's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

We update our analysis on Lum Chang Holdings every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Lum Chang Holdings an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Lum Chang Holdings don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 3 warning signs for Lum Chang Holdings that we strongly recommend you have a look at before investing in the company.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.