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Asia Commercial Holdings Limited (HKG:104) Goes Ex-Dividend In 3 Days

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Asia Commercial Holdings Limited (HKG:104) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 3rd of October in order to be eligible for this dividend, which will be paid on the 25th of October.

Asia Commercial Holdings's next dividend payment will be HK$0.03 per share. Last year, in total, the company distributed HK$0.03 to shareholders. Looking at the last 12 months of distributions, Asia Commercial Holdings has a trailing yield of approximately 5.8% on its current stock price of HK$0.445. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Asia Commercial Holdings

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. That's why it's good to see Asia Commercial Holdings paying out a modest 28% of its earnings. A useful secondary check can be to evaluate whether Asia Commercial Holdings generated enough free cash flow to afford its dividend. The company paid out 105% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

While Asia Commercial 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 Asia Commercial Holdings's ability to maintain its dividend.

Click here to see how much of its profit Asia Commercial Holdings paid out over the last 12 months.

SEHK:104 Historical Dividend Yield, September 29th 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Asia Commercial Holdings has grown its earnings rapidly, up 78% a year for the past five years. Earnings have been growing quickly, 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. Asia Commercial Holdings has seen its dividend decline 4.4% per annum on average over the past ten years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Is Asia Commercial Holdings an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Keen to explore more data on Asia Commercial 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.