Readers hoping to buy FinVolution Group (NYSE:FINV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 6th of April will not receive the dividend, which will be paid on the 30th of April.
FinVolution Group's upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.85 per share to shareholders. Last year's total dividend payments show that FinVolution Group has a trailing yield of 6.7% on the current share price of $1.78. If you buy this business for its dividend, you should have an idea of whether FinVolution Group'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 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. FinVolution Group paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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. That's why it's comforting to see FinVolution Group's earnings have been skyrocketing, up 68% per annum for the past five years.
FinVolution Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. 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 FinVolution Group has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
Should investors buy FinVolution Group for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating FinVolution Group more closely.
So while FinVolution Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 4 warning signs for FinVolution Group (2 make us uncomfortable!) that deserve your attention before investing in the shares.
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.
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.
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. Thank you for reading.