Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Modern Land (China) Co., Limited (HKG:1107) is about to trade ex-dividend in the next 2 days. If you purchase the stock on or after the 10th of October, you won't be eligible to receive this dividend, when it is paid on the 31st of October.
Modern Land (China)'s next dividend payment will be HK$0.04 per share, on the back of last year when the company paid a total of HK$0.04 to shareholders. Looking at the last 12 months of distributions, Modern Land (China) has a trailing yield of approximately 3.7% on its current stock price of HK$1.07. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Modern Land (China) paid out just 20% 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. It paid out 3.0% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Modern Land (China)'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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Modern Land (China)'s earnings are down 4.6% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Modern Land (China) has delivered 11% dividend growth per year on average over the past six years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Modern Land (China)? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Modern Land (China)'s dividend merits.
Keen to explore more data on Modern Land (China)'s financial performance? Check out our visualisation of its historical revenue and earnings growth.
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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If you spot an error that warrants correction, please contact the editor at email@example.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.