It looks like High Fashion International Limited (HKG:608) is about to go ex-dividend in the next 4 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. 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 High Fashion International's shares on or after the 10th of September will not receive the dividend, which will be paid on the 4th of October.

The company's next dividend payment will be HK$0.035 per share, and in the last 12 months, the company paid a total of HK$0.15 per share. Based on the last year's worth of payments, High Fashion International has a trailing yield of 9.9% on the current stock price of HK$1.57. If you buy this business for its dividend, you should have an idea of whether High Fashion International's dividend is reliable and sustainable. As a result, readers should always check whether High Fashion International has been able to grow its dividends, or if the dividend might be cut.

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. Fortunately High Fashion International's payout ratio is modest, at just 43% of profit. 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. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that High Fashion International'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 High Fashion International paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see High Fashion International's earnings have been skyrocketing, up 20% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. High Fashion International's dividend payments per share have declined at 2.5% per year on average over the past 10 years, which is uninspiring. High Fashion International is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Should investors buy High Fashion International for the upcoming dividend? It's great that High Fashion International is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. High Fashion International looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for High Fashion International and you should be aware of them before buying any shares.

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.