It looks like Xinhua Winshare Publishing and Media Co., Ltd. (HKG:811) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 27th of May, you won't be eligible to receive this dividend, when it is paid on the 20th of July.
Xinhua Winshare Publishing and Media's next dividend payment will be HK$0.30 per share, on the back of last year when the company paid a total of HK$0.30 to shareholders. Calculating the last year's worth of payments shows that Xinhua Winshare Publishing and Media has a trailing yield of 6.3% on the current share price of HK$5.21. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Xinhua Winshare Publishing and Media can afford its dividend, and if the dividend could grow.
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. Fortunately Xinhua Winshare Publishing and Media's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether Xinhua Winshare Publishing and Media generated enough free cash flow to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past year.
It's positive to see that Xinhua Winshare Publishing and Media'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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Xinhua Winshare Publishing and Media, with earnings per share up 9.2% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, Xinhua Winshare Publishing and Media has lifted its dividend by approximately 0.7% a year on average.
To Sum It Up
Should investors buy Xinhua Winshare Publishing and Media for the upcoming dividend? Earnings per share growth has been growing somewhat, and Xinhua Winshare Publishing and Media 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Xinhua Winshare Publishing and Media is halfway there. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Xinhua Winshare Publishing and Media for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Xinhua Winshare Publishing and Media and you should be aware of this before buying any 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.