Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sun Hung Kai Properties Limited (HKG:16) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 11th of November, you won't be eligible to receive this dividend, when it is paid on the 21st of November.
Sun Hung Kai Properties's next dividend payment will be HK$3.7 per share, on the back of last year when the company paid a total of HK$5.0 to shareholders. Looking at the last 12 months of distributions, Sun Hung Kai Properties has a trailing yield of approximately 4.1% on its current stock price of HK$121.3. 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 investigate whether Sun Hung Kai Properties can afford its dividend, and if the dividend could grow.
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. Fortunately Sun Hung Kai Properties's payout ratio is modest, at just 32% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Sun Hung Kai Properties paid out more free cash flow than it generated - 117%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Sun Hung Kai Properties paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Sun Hung Kai Properties's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Sun Hung Kai Properties, with earnings per share up 4.5% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Sun Hung Kai Properties has increased its dividend at approximately 7.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Has Sun Hung Kai Properties got what it takes to maintain its dividend payments? Sun Hung Kai Properties has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. In summary, it's hard to get excited about Sun Hung Kai Properties from a dividend perspective.
Curious what other investors think of Sun Hung Kai Properties? See what analysts 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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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.