Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tsit Wing International Holdings Limited (HKG:2119) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 4th of September in order to be eligible for this dividend, which will be paid on the 24th of September.
Tsit Wing International Holdings's next dividend payment will be HK$0.025 per share, on the back of last year when the company paid a total of HK$0.058 to shareholders. Calculating the last year's worth of payments shows that Tsit Wing International Holdings has a trailing yield of 4.8% on the current share price of HK$1.2. 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! We need to see whether the dividend is covered by earnings and if it's growing.
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. Tsit Wing International Holdings is paying out an acceptable 53% of its profit, a common payout level among most companies. 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. 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 Tsit Wing International 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Tsit Wing International Holdings's earnings per share have risen 19% per annum over the last five years. Tsit Wing International Holdings has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Tsit Wing International Holdings 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. It's hard to grow dividends per share when a company keeps creating new shares.
This is Tsit Wing International Holdings's first year of paying a dividend, so it doesn't have much of a history yet to compare to.
To Sum It Up
Is Tsit Wing International Holdings worth buying for its dividend? Tsit Wing International Holdings's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Tsit Wing International Holdings, and we would prioritise taking a closer look at it.
Want to learn more about Tsit Wing International Holdings? Here's a visualisation of its historical rate of 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.
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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.