It looks like Want Want China Holdings Limited (HKG:151) is about to go ex-dividend in the next 2 days. You can purchase shares before the 22nd of August in order to receive the dividend, which the company will pay on the 11th of September.
Want Want China Holdings's next dividend payment will be CN¥0.029 per share, on the back of last year when the company paid a total of CN¥0.23 to shareholders. Looking at the last 12 months of distributions, Want Want China Holdings has a trailing yield of approximately 4.3% on its current stock price of HK$6.05. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Want Want China Holdings is paying out an acceptable 71% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 33% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Want Want China Holdings's earnings are down 3.0% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Want Want China Holdings has lifted its dividend by approximately 11% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
To Sum It Up
From a dividend perspective, should investors buy or avoid Want Want China Holdings? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Wondering what the future holds for Want Want China Holdings? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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