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Read This Before Considering China New Higher Education Group Limited (HKG:2001) For Its Upcoming 1.2% Dividend

Simply Wall St

It looks like China New Higher Education Group Limited (HKG:2001) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 13th of September, you won't be eligible to receive this dividend, when it is paid on the 2nd of October.

China New Higher Education Group's upcoming dividend is CN¥0.04 a share, following on from the last 12 months, when the company distributed a total of CN¥0.046 per share to shareholders. Last year's total dividend payments show that China New Higher Education Group has a trailing yield of 1.5% on the current share price of HK$3.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for China New Higher Education Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China New Higher Education Group paid out a comfortable 27% 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 56% 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

SEHK:2001 Historical Dividend Yield, September 9th 2019

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, it's good to see earnings have grown 5.8% on last year. Decent historical earnings per share growth suggests China New Higher Education Group has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China New Higher Education Group has delivered an average of 4.7% per year annual increase in its dividend, based on the past 2 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy China New Higher Education Group for the upcoming dividend? Earnings per share have been growing at a steady rate, and China New Higher Education Group paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, it's hard to get excited about China New Higher Education Group from a dividend perspective.

Wondering what the future holds for China New Higher Education Group? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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 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.