Here's What We Like About Shenzhen International Holdings Limited's (HKG:152) Upcoming Dividend
Shenzhen International Holdings Limited (HKG:152) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 19th of May will not receive this dividend, which will be paid on the 19th of June.
The upcoming dividend for Shenzhen International Holdings will put a total of HK$1.17 per share in shareholders' pockets, up from last year's total dividends of HK$0.53. 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! We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Shenzhen International Holdings
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. Shenzhen International Holdings paid out just 23% 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. Dividends consumed 66% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Shenzhen International 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. For this reason, we're glad to see Shenzhen International Holdings's earnings per share have risen 12% per annum over the last five years. Shenzhen International Holdings is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Shenzhen International Holdings has lifted its dividend by approximately 23% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid Shenzhen International Holdings? Earnings per share have grown at a nice rate in recent times and over the last year, Shenzhen International Holdings paid out less than half its earnings and a bit over half its free cash flow. Shenzhen International Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Shenzhen International Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 4 warning signs for Shenzhen International Holdings (of which 1 shouldn't be ignored!) you should know about.
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.
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