Lion Rock Group Limited (HKG:1127) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 12th of September, you won't be eligible to receive this dividend, when it is paid on the 2nd of October.
Lion Rock Group's next dividend payment will be HK$0.03 per share, and in the last 12 months, the company paid a total of HK$0.10 per share. Based on the last year's worth of payments, Lion Rock Group stock has a trailing yield of around 8.4% on the current share price of HK$1.19. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Lion Rock Group paying out a modest 46% of its earnings. 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 108% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.
Lion Rock Group does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Lion Rock Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Lion Rock Group's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 encouraged by the steady growth at Lion Rock Group, with earnings per share up 5.4% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 8 years, Lion Rock Group has increased its dividend at approximately 13% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Lion Rock Group an attractive dividend stock, or better left on the shelf? Lion Rock Group has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Lion Rock Group today.
Want to learn more about Lion Rock Group? Here's a visualisation of its historical rate of revenue and earnings growth.
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