We wouldn’t be too quick to buy Tradelink Electronic Commerce Limited (HKG: 536) before it becomes ex-dividend

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Tradelink Electronic Commerce Limited (HKG: 536) the stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the registration date which is the day on which shareholders must be entered in the books of the company to receive a dividend. It is important to know the ex-dividend date because any transaction in the share must have been settled by the registration date at the latest. This means that you will need to buy Tradelink Electronic Commerce shares by September 23 to receive the dividend, which will be paid on October 8.

The company’s next dividend is HK $ 0.028 per share, following the last 12 months when the company has distributed a total of HK $ 0.10 per share to shareholders. Looking at the last 12 months of distributions, Tradelink Electronic Commerce has a sliding return of around 8.4% on its current price of HK $ 1.19. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

See our latest review for Tradelink Electronic Commerce

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Tradelink Electronic Commerce paid 97% of its profits which is more than we are comfortable with, barring extenuating circumstances. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we always need to check if the dividend is covered by the cash flow. In the past year, it has paid out 111% of its free cash flow as dividends, which is uncomfortably high. We’re curious as to why the company paid out more cash than it generated last year, as that can be one of the first signs that a dividend may be unsustainable.

Tradelink Electronic Commerce has a large net cash position on the balance sheet, which could fund large dividends for a period of time, if the company so wished. Yet savvy investors know that it is better to weigh dividends against cash and profits generated by the company. Paying cash dividends to the balance sheet is not sustainable in the long term.

Since Tradelink Electronic Commerce’s dividend was not well covered by earnings or cash flow, we are concerned that this dividend may be at risk in the long term.

Click here to see how much of its Profit Tradelink Electronic Commerce has paid in the last 12 months.

SEHK: 536 Historic dividend September 19, 2021

Have profits and dividends increased?

Stocks with stable earnings can still be attractive dividend payers, but it’s important to be more careful in your approach and demand a greater margin of safety when it comes to dividend sustainability. If profits fall enough, the company could be forced to cut its dividend. This explains why we are not too excited about the stable profits of Tradelink Electronic Commerce over the past five years. It’s better than seeing them go down, of course, but over the long term, all the best dividend-paying stocks are capable of significantly increasing their earnings per share. Minimal earnings growth, combined with relatively high payout ratios, suggests that Tradelink Electronic Commerce is unlikely to increase the dividend much in the future, and indeed the payout could be vulnerable to a reduction.

Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Over the past 10 years, Tradelink Electronic Commerce has increased its dividend by approximately 1.3% per year on average.

To summarize

Is Tradelink Electronic Commerce an attractive dividend-paying stock, or better still, it’s left on the shelf? Tradelink Electronic Commerce pays an uncomfortably high percentage of earnings and cash flow as dividends as its earnings per share struggle to rise. It’s not that we think Tradelink Electronic Commerce is a bad company, but these characteristics generally don’t lead to outstanding dividend performance.

That being said, if you are still considering Tradelink ecommerce as an investment, you will find it useful to know what risks this stock faces. For example, we have identified 2 warning signs for Tradelink Electronic Commerce (1 is significant) you must be aware.

However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.

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