Readers hoping to buy Hang Lung Group Limited (HKG:10) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 10th of September to receive the dividend, which will be paid on the 26th of September.
Hang Lung Group's next dividend payment will be HK$0.19 per share, on the back of last year when the company paid a total of HK$0.80 to shareholders. Based on the last year's worth of payments, Hang Lung Group stock has a trailing yield of around 4.0% on the current share price of HK$20.1. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hang Lung Group paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Hang Lung Group generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 18% 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?
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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Hang Lung Group, with earnings per share up 5.3% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hang Lung Group has delivered an average of 1.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
Is Hang Lung Group worth buying for its dividend? Earnings per share growth has been growing somewhat, and Hang Lung Group 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 Hang Lung Group is halfway there. Hang Lung Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious about whether Hang Lung Group has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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