Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that BKI Investment Company Limited (ASX:BKI) is about to go ex-dividend in just 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase BKI Investment's shares before the 6th of August in order to be eligible for the dividend, which will be paid on the 26th of August.

The company's next dividend payment will be AU$0.03 per share, on the back of last year when the company paid a total of AU$0.05 to shareholders. Last year's total dividend payments show that BKI Investment has a trailing yield of 3.0% on the current share price of A$1.645. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for BKI Investment

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. BKI Investment paid out 101% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit BKI Investment paid out over the last 12 months. historic-dividend

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see BKI Investment's earnings per share have dropped 7.5% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.



Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. BKI Investment's dividend payments are broadly unchanged compared to where they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

To Sum It Up

Should investors buy BKI Investment for the upcoming dividend? Not only are earnings per share shrinking, but BKI Investment is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that in mind though, if the poor dividend characteristics of BKI Investment don't faze you, it's worth being mindful of the risks involved with this business. For example - BKI Investment has 1 warning sign we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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. 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.

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