Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Allan International Holdings Limited (HKG:684) is about to go ex-dividend in just 4 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. This means that investors who purchase Allan International Holdings' shares on or after the 11th of December will not receive the dividend, which will be paid on the 8th of January.

The upcoming dividend for Allan International Holdings will put a total of HK$0.15 per share in shareholders' pockets, up from last year's total dividends of HK$0.04. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Allan International 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. Allan International Holdings 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. 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 Allan International 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. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Allan International Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Allan International Holdings has seen its dividend decline 11% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Remember, you can always get a snapshot of Allan International Holdings's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Allan International Holdings? 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 that we think Allan International Holdings is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Allan International Holdings and want to know more, you'll find it very useful to know what risks this stock faces. For example, Allan International Holdings has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.