Readers hoping to buy Kingboard Holdings Limited (HKG:148) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 27th of May in order to receive the dividend, which the company will pay on the 12th of June.
Kingboard Holdings's next dividend payment will be HK$1.10 per share, on the back of last year when the company paid a total of HK$1.38 to shareholders. Based on the last year's worth of payments, Kingboard Holdings stock has a trailing yield of around 7.5% on the current share price of HK$18.46. 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! As a result, readers should always check whether Kingboard Holdings has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kingboard Holdings paid out a comfortable 31% of its profit last year. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.
It's positive to see that Kingboard Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. With that in mind, we're encouraged by the steady growth at Kingboard Holdings, with earnings per share up 2.9% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Kingboard Holdings has lifted its dividend by approximately 11% 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.
The Bottom Line
From a dividend perspective, should investors buy or avoid Kingboard Holdings? Earnings per share growth has been growing somewhat, and Kingboard Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Kingboard Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Kingboard Holdings, and we would prioritise taking a closer look at it.
While it's tempting to invest in Kingboard Holdings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Kingboard Holdings that you should be aware of before investing in their 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.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.