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It Might Not Be A Great Idea To Buy Ho Bee Land Limited (SGX:H13) For Its Next Dividend

Ho Bee Land Limited (SGX:H13) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Ho Bee Land's shares before the 14th of May in order to receive the dividend, which the company will pay on the 24th of May.

The company's upcoming dividend is S$0.03 a share, following on from the last 12 months, when the company distributed a total of S$0.03 per share to shareholders. Looking at the last 12 months of distributions, Ho Bee Land has a trailing yield of approximately 1.6% on its current stock price of S$1.92. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Ho Bee Land

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. Ho Bee Land paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. 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. The good news is it paid out just 17% of its free cash flow in the last year.

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Click here to see how much of its profit Ho Bee Land paid out over the last 12 months.

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historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Ho Bee Land 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ho Bee Land's dividend payments per share have declined at 5.0% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on Ho Bee Land every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Has Ho Bee Land got what it takes to maintain its dividend payments? It's hard to get used to Ho Bee Land 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 Ho Bee Land. Every company has risks, and we've spotted 2 warning signs for Ho Bee Land you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.