Shui On Land Limited (HKG:272) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 11th of September in order to receive the dividend, which the company will pay on the 27th of September.
Shui On Land's next dividend payment will be CN¥0.036 per share, on the back of last year when the company paid a total of CN¥0.09 to shareholders. Based on the last year's worth of payments, Shui On Land stock has a trailing yield of around 6.1% on the current share price of HK$1.62. 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 investigate whether Shui On Land can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Shui On Land's payout ratio is modest, at just 43% of profit. A useful secondary check can be to evaluate whether Shui On Land generated enough free cash flow to afford its dividend. The good news is it paid out just 6.3% of its free cash flow in the last year.
It's positive to see that Shui On Land'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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Shui On Land's earnings per share have been shrinking at 2.5% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Shui On Land has delivered an average of 3.5% per year annual increase in its dividend, based on the past 10 years of dividend payments.
To Sum It Up
Has Shui On Land got what it takes to maintain its dividend payments? 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. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Wondering what the future holds for Shui On Land? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 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.