It Might Be Better To Avoid BExcellent Group Holdings Limited's (HKG:1775) Upcoming Dividend

BExcellent Group Holdings Limited (HKG:1775) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 10th of December to receive the dividend, which will be paid on the 24th of December.

BExcellent Group Holdings's next dividend payment will be HK$0.03 per share. Last year, in total, the company distributed HK$0.03 to shareholders. Calculating the last year's worth of payments shows that BExcellent Group Holdings has a trailing yield of 5.7% on the current share price of HK$0.53. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether BExcellent Group Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for BExcellent Group Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. BExcellent Group Holdings paid out a comfortable 42% of its profit last year. 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 past year it paid out 125% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

BExcellent Group Holdings does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

BExcellent Group 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 BExcellent Group 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 BExcellent Group 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. BExcellent Group Holdings's earnings per share have plummeted approximately 51% a year over the previous five years.

BExcellent Group Holdings also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Given that BExcellent Group Holdings has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Is BExcellent Group Holdings worth buying for its dividend? BExcellent Group Holdings's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of BExcellent Group Holdings.

Want to learn more about BExcellent Group Holdings? Here's a visualisation of its historical rate of 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.

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.

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