Hung Hing Printing Group Limited (HKG:450) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 28th of May, you won't be eligible to receive this dividend, when it is paid on the 16th of June.
Hung Hing Printing Group's next dividend payment will be HK$0.07 per share. Last year, in total, the company distributed HK$0.10 to shareholders. Calculating the last year's worth of payments shows that Hung Hing Printing Group has a trailing yield of 9.6% on the current share price of HK$1.04. If you buy this business for its dividend, you should have an idea of whether Hung Hing Printing Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hung Hing Printing Group paid out more than half (71%) of its earnings last year, which is a regular payout ratio for most companies. 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. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Hung Hing Printing Group's earnings have been skyrocketing, up 57% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hung Hing Printing Group has seen its dividend decline 3.3% per annum on average over the past ten years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Should investors buy Hung Hing Printing Group for the upcoming dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Hung Hing Printing Group's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 71% and 68% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Hung Hing Printing Group's dividend merits.
While it's tempting to invest in Hung Hing Printing Group for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Hung Hing Printing Group that we recommend you consider before investing in the business.
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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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. Thank you for reading.