Readers hoping to buy Tianneng Power International Limited (HKG:819) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 27th of May to receive the dividend, which will be paid on the 29th of June.
Tianneng Power International's next dividend payment will be HK$0.39 per share, which looks like a nice increase on last year, when the company distributed a total of HK$0.35 to shareholders. 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 Tianneng Power International can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tianneng Power International has a low and conservative payout ratio of just 23% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Tianneng Power International'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. That's why it's comforting to see Tianneng Power International's earnings have been skyrocketing, up 36% per annum for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tianneng Power International has delivered an average of 17% per year annual increase in its dividend, based on the past ten years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Tianneng Power International worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Tianneng Power International paid out less than half its earnings and a bit over half its free cash flow. Tianneng Power International looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Tianneng Power International looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 3 warning signs we've spotted with Tianneng Power International (including 1 which is concerning).
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.