Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Eagle Nice (International) Holdings Limited (HKG:2368) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 22nd of August, you won't be eligible to receive this dividend, when it is paid on the 12th of September.

Eagle Nice (International) Holdings's next dividend payment will be HK$0.06 per share, and in the last 12 months, the company paid a total of HK$0.20 per share. Based on the last year's worth of payments, Eagle Nice (International) Holdings has a trailing yield of 8.9% on the current stock price of HK$2.25. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Eagle Nice (International) Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Eagle Nice (International) Holdings is paying out an acceptable 72% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 371% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Eagle Nice (International) Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Eagle Nice (International) Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Eagle Nice (International) Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Eagle Nice (International) Holdings has grown its earnings rapidly, up 45% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Eagle Nice (International) Holdings has seen its dividend decline 1.8% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Should investors buy Eagle Nice (International) Holdings for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Eagle Nice (International) Holdings paid out a much higher percentage of its free cash flow, which makes us uncomfortable. To summarise, Eagle Nice (International) Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Curious about whether Eagle Nice (International) Holdings has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.