Readers hoping to buy DCB Holdings Limited (HKG:8040) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 7th of August will not receive this dividend, which will be paid on the 3rd of September.
DCB Holdings's next dividend payment will be HK$0.012 per share, and in the last 12 months, the company paid a total of HK$0.012 per share. Looking at the last 12 months of distributions, DCB Holdings has a trailing yield of approximately 4.4% on its current stock price of HK$0.275. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether DCB Holdings has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see DCB Holdings paying out a modest 36% of its earnings. 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.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. DCB Holdings's earnings per share have fallen at approximately 9.9% a year over the previous 3 years. Such a sharp decline casts doubt on the future sustainability of the dividend.
We'd also point out that DCB 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.
Unfortunately DCB Holdings has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
The Bottom Line
Is DCB Holdings worth buying for its dividend? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though DCB Holdings is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not that we think DCB Holdings is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Keen to explore more data on DCB Holdings's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.