Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hong Kong Economic Times Holdings Limited (HKG:423) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 9th of August will not receive this dividend, which will be paid on the 27th of September.
Hong Kong Economic Times Holdings's upcoming dividend is HK$0.065 a share, following on from the last 12 months, when the company distributed a total of HK$0.085 per share to shareholders. Based on the last year's worth of payments, Hong Kong Economic Times Holdings has a trailing yield of 5.5% on the current stock price of HK$1.55. If you buy this business for its dividend, you should have an idea of whether Hong Kong Economic Times Holdings's dividend is reliable and sustainable. 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. Hong Kong Economic Times Holdings is paying out an acceptable 51% of its profit, a common payout level among most companies. 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 more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Hong Kong Economic Times 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.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Hong Kong Economic Times Holdings has grown its earnings rapidly, up 21% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hong Kong Economic Times Holdings has seen its dividend decline 4.3% per annum on average over the past 10 years, which is not great to see. Hong Kong Economic Times Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
Has Hong Kong Economic Times Holdings got what it takes to maintain its dividend payments? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Hong Kong Economic Times Holdings is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, it's hard to get excited about Hong Kong Economic Times Holdings from a dividend perspective.
Want to learn more about Hong Kong Economic Times Holdings's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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