It looks like Hollysys Automation Technologies Ltd. (NASDAQ:HOLI) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 21st of October will not receive this dividend, which will be paid on the 12th of November.
Hollysys Automation Technologies's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.2 per share to shareholders. Based on the last year's worth of payments, Hollysys Automation Technologies has a trailing yield of 1.5% on the current stock price of $14.475. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Hollysys Automation Technologies has been able to grow its dividends, or if the dividend might be cut.
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. Hollysys Automation Technologies has a low and conservative payout ratio of just 10% of its income after tax. 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. It paid out 11% of its free cash flow as dividends last year, which is conservatively low.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Hollysys Automation Technologies's earnings per share have risen 12% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past three years, Hollysys Automation Technologies has increased its dividend at approximately 1.6% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Should investors buy Hollysys Automation Technologies for the upcoming dividend? Hollysys Automation Technologies has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past three years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Hollysys Automation Technologies, and we would prioritise taking a closer look at it.
Curious what other investors think of Hollysys Automation Technologies? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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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