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Is It Smart To Buy BAIOO Family Interactive Limited (HKG:2100) Before It Goes Ex-Dividend?

Simply Wall St

BAIOO Family Interactive Limited (HKG:2100) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 4th of December, you won't be eligible to receive this dividend, when it is paid on the 24th of December.

BAIOO Family Interactive's next dividend payment will be HK$0.025 per share, which looks like a nice increase on last year, when the company distributed a total of HK$0.018 to shareholders. If you buy this business for its dividend, you should have an idea of whether BAIOO Family Interactive's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for BAIOO Family Interactive

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.

Click here to see how much of its profit BAIOO Family Interactive paid out over the last 12 months.

SEHK:2100 Historical Dividend Yield, November 29th 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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see BAIOO Family Interactive's earnings have been skyrocketing, up 49% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last four years, BAIOO Family Interactive has lifted its dividend by approximately 10% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy BAIOO Family Interactive for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, BAIOO Family Interactive appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

Keen to explore more data on BAIOO Family Interactive's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.

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.

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. Thank you for reading.