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Is It Smart To Buy Logan Property Holdings Company Limited (HKG:3380) Before It Goes Ex-Dividend?

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Logan Property Holdings Company Limited (HKG:3380) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 14th of November will not receive this dividend, which will be paid on the 29th of November.

Logan Property Holdings's upcoming dividend is HK$0.4 a share, following on from the last 12 months, when the company distributed a total of HK$0.8 per share to shareholders. Calculating the last year's worth of payments shows that Logan Property Holdings has a trailing yield of 6.9% on the current share price of HK$12.34. If you buy this business for its dividend, you should have an idea of whether Logan Property Holdings's dividend is reliable and sustainable. So we need to investigate whether Logan Property Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Logan Property Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Logan Property Holdings's payout ratio is modest, at just 39% of profit. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.

It's positive to see that Logan Property 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.

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

SEHK:3380 Historical Dividend Yield, November 10th 2019

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Logan Property Holdings has grown its earnings rapidly, up 30% a year for the past five years. Logan Property Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past six years, Logan Property Holdings has increased its dividend at approximately 43% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Logan Property Holdings for the upcoming dividend? Logan Property Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past six years, but the conservative payout ratio makes the current dividend look sustainable. Logan Property Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Curious what other investors think of Logan Property Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.