It looks like Ocean One Holding Ltd. (HKG:8476) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 27th of August in order to be eligible for this dividend, which will be paid on the 13th of September.
Ocean One Holding's upcoming dividend is HK$0.027 a share, following on from the last 12 months, when the company distributed a total of HK$0.027 per share to shareholders. Calculating the last year's worth of payments shows that Ocean One Holding has a trailing yield of 3.8% on the current share price of HK$0.72. If you buy this business for its dividend, you should have an idea of whether Ocean One Holding's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Ocean One Holding paid out a comfortable 35% of its profit last year. 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 dividends equivalent to 387% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Ocean One Holding is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
Ocean One Holding paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Ocean One Holding's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For that reason, it's encouraging to see Ocean One Holding's earnings over the past year have risen 0.3972. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.
We'd also point out that Ocean One Holding issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Given that Ocean One Holding has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Has Ocean One Holding got what it takes to maintain its dividend payments? We like that Ocean One Holding has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about Ocean One Holding from a dividend perspective.
Want to learn more about Ocean One Holding's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
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 firstname.lastname@example.org. 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.