Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Dream International Limited (HKG:1126) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 20th of May will not receive the dividend, which will be paid on the 5th of June.
Dream International's next dividend payment will be HK$0.10 per share, and in the last 12 months, the company paid a total of HK$0.13 per share. Based on the last year's worth of payments, Dream International stock has a trailing yield of around 4.5% on the current share price of HK$2.89. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Dream International paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Dream International's earnings have been skyrocketing, up 32% per annum for the past five years. Dream International earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Dream International has delivered an average of 16% 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.
Is Dream International an attractive dividend stock, or better left on the shelf? Dream International has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. Dream International looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Dream International is facing. Case in point: We've spotted 1 warning sign for Dream International you should be aware of.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.