China SCE Group Holdings Limited (HKG:1966) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 10th of September will not receive this dividend, which will be paid on the 4th of October.
China SCE Group Holdings's upcoming dividend is CN¥0.10 a share, following on from the last 12 months, when the company distributed a total of CN¥0.18 per share to shareholders. Based on the last year's worth of payments, China SCE Group Holdings stock has a trailing yield of around 5.1% on the current share price of HK$3.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether China SCE Group Holdings 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 China SCE Group Holdings's payout ratio is modest, at just 26% of profit. 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. Luckily it paid out just 16% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see China SCE Group Holdings has grown its earnings rapidly, up 26% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China SCE Group Holdings has seen its dividend decline 32% per annum on average over the past 9 years, which is not great to see. China SCE Group Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Should investors buy China SCE Group Holdings for the upcoming dividend? It's great that China SCE Group Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for China SCE Group Holdings? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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