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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 Hollysys Automation Technologies Ltd. (NASDAQ:HOLI) is about to go ex-dividend in just four days. You will need to purchase shares before the 21st of October to receive the dividend, which will be paid on the 20th of November.
Hollysys Automation Technologies's next dividend payment will be US$0.20 per share. Last year, in total, the company distributed US$0.20 to shareholders. Calculating the last year's worth of payments shows that Hollysys Automation Technologies has a trailing yield of 1.6% on the current share price of $12.16. If you buy this business for its dividend, you should have an idea of whether Hollysys Automation Technologies's dividend is reliable and sustainable. So we need to investigate whether Hollysys Automation Technologies can afford its dividend, and if the dividend could grow.
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. Hollysys Automation Technologies paid out just 15% 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. Luckily it paid out just 7.6% of its free 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?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Hollysys Automation Technologies's earnings per share have been shrinking at 4.5% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hollysys Automation Technologies's dividend payments are broadly unchanged compared to where they were four years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Is Hollysys Automation Technologies an attractive dividend stock, or better left on the shelf? Hollysys Automation Technologies has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, Hollysys Automation Technologies looks okay on this analysis, although it doesn't appear a stand-out opportunity.
On that note, you'll want to research what risks Hollysys Automation Technologies is facing. To help with this, we've discovered 2 warning signs for Hollysys Automation Technologies that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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