It looks like Winfair Investment Company Limited (HKG:287) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Winfair Investment's shares on or after the 13th of December will not receive the dividend, which will be paid on the 9th of January.

The company's upcoming dividend is HK$0.02 a share, following on from the last 12 months, when the company distributed a total of HK$0.14 per share to shareholders. Based on the last year's worth of payments, Winfair Investment has a trailing yield of 2.4% on the current stock price of HK$5.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Winfair Investment has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Winfair Investment

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Winfair Investment 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 cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 30% of its free cash flow in the past year.

Click here to see how much of its profit Winfair Investment 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Winfair Investment 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. In the last 10 years, Winfair Investment has lifted its dividend by approximately 1.6% a year on average.

Get our latest analysis on Winfair Investment's balance sheet health here.

To Sum It Up

Is Winfair Investment an attractive dividend stock, or better left on the shelf? It's hard to get used to Winfair Investment paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Winfair Investment. For instance, we've identified 3 warning signs for Winfair Investment (1 can't be ignored) you should be aware of.

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.