Dragon Crown Group Holdings Limited (HKG:935) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 3rd of September in order to be eligible for this dividend, which will be paid on the 27th of September.
Dragon Crown Group Holdings's next dividend payment will be HK$0.015 per share, and in the last 12 months, the company paid a total of HK$0.04 per share. Calculating the last year's worth of payments shows that Dragon Crown Group Holdings has a trailing yield of 6.3% on the current share price of HK$0.64. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. It paid out 87% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Fortunately, it paid out only 32% of its free cash flow in the past year.
It's positive to see that Dragon Crown Group 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?
When earnings decline, dividend companies become much harder to analyse and own safely. 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 discomforted by Dragon Crown Group Holdings's 16% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Dragon Crown Group Holdings's dividend payments per share have declined at 3.1% per year on average over the past 7 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
From a dividend perspective, should investors buy or avoid Dragon Crown Group Holdings? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. To summarise, Dragon Crown Group Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Want to learn more about Dragon Crown Group Holdings? Here's a visualisation of its historical rate of revenue and earnings growth.
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