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Should Income Investors Look At Tenfu (Cayman) Holdings Company Limited (HKG:6868) Before Its Ex-Dividend?

Simply Wall St

Tenfu (Cayman) Holdings Company Limited (HKG:6868) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 4th of September, you won't be eligible to receive this dividend, when it is paid on the 26th of September.

Tenfu (Cayman) Holdings's next dividend payment will be CN¥0.06 per share. Last year, in total, the company distributed CN¥0.17 to shareholders. Based on the last year's worth of payments, Tenfu (Cayman) Holdings has a trailing yield of 3.6% on the current stock price of HK$5.25. 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.

View our latest analysis for Tenfu (Cayman) Holdings

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. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. 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 more than three-quarters (89%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Tenfu (Cayman) 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 how much of its profit Tenfu (Cayman) Holdings paid out over the last 12 months.

SEHK:6868 Historical Dividend Yield, August 30th 2019

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Tenfu (Cayman) Holdings's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A high payout ratio of 79% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Tenfu (Cayman) Holdings could be signalling that its future growth prospects are thin.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 7 years, Tenfu (Cayman) Holdings has increased its dividend at approximately 4.3% a year on average.

The Bottom Line

Is Tenfu (Cayman) Holdings worth buying for its dividend? Tenfu (Cayman) Holdings has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

Keen to explore more data on Tenfu (Cayman) Holdings's financial performance? Check out our visualisation 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.