Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sino Hotels (Holdings) Limited (HKG:1221) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 28th of October, you won't be eligible to receive this dividend, when it is paid on the 4th of December.
Sino Hotels (Holdings)'s next dividend payment will be HK$0.05 per share. Last year, in total, the company distributed HK$0.1 to shareholders. Based on the last year's worth of payments, Sino Hotels (Holdings) stock has a trailing yield of around 3.2% on the current share price of HK$3. 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.
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. Sino Hotels (Holdings) is paying out an acceptable 53% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Sino Hotels (Holdings) generated enough free cash flow to afford its dividend. The good news is it paid out just 9.7% of its free cash flow in the last 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Sino Hotels (Holdings)'s earnings per share have fallen at approximately 6.3% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sino Hotels (Holdings) has delivered an average of 8.5% per year annual increase in its dividend, based on the past ten years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Has Sino Hotels (Holdings) got what it takes to maintain its dividend payments? 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. In summary, while it has some positive characteristics, we're not inclined to race out and buy Sino Hotels (Holdings) today.
Curious about whether Sino Hotels (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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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.