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 B & S International Holdings Ltd. (HKG:1705) is about to go ex-dividend in just 3 days. Investors can purchase shares before the 5th of September in order to be eligible for this dividend, which will be paid on the 20th of September.
B & S International Holdings's next dividend payment will be HK$0.02 per share, and in the last 12 months, the company paid a total of HK$0.04 per share. Looking at the last 12 months of distributions, B & S International Holdings has a trailing yield of approximately 5.5% on its current stock price of HK$0.73. If you buy this business for its dividend, you should have an idea of whether B & S International Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 89% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. B & S International Holdings paid out more free cash flow than it generated - 194%, to be precise - last year, which we think is concerningly 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.
While B & S International Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to B & S International Holdings's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. B & S International Holdings's earnings per share plummeted 27% over the past year,which is rarely good news for the dividend.
We'd also point out that B & S International Holdings issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Given that B & S International Holdings has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
Should investors buy B & S International Holdings for the upcoming dividend? B & S International Holdings had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Curious about whether B & S International Holdings has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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