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Is It Smart To Buy Yongmao Holdings Limited (SGX:BKX) Before It Goes Ex-Dividend?

Simply Wall St

It looks like Yongmao Holdings Limited (SGX:BKX) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 14th of August in order to be eligible for this dividend, which will be paid on the 30th of August.

Yongmao Holdings's next dividend payment will be CN¥0.03 per share, and in the last 12 months, the company paid a total of CN¥0.15 per share. Calculating the last year's worth of payments shows that Yongmao Holdings has a trailing yield of 3.9% on the current share price of SGD0.76. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Yongmao Holdings can afford its dividend, and if the dividend could grow.

See our latest analysis for Yongmao 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. Yongmao Holdings paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 6.8% of its cash flow last year.

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 how much of its profit Yongmao Holdings paid out over the last 12 months.

SGX:BKX Historical Dividend Yield, August 9th 2019

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Yongmao Holdings earnings per share are up 3.7% per annum over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Yongmao Holdings has delivered an average of 3.0% per year annual increase in its dividend, based on the past 10 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.

Final Takeaway

Is Yongmao Holdings an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Yongmao Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Yongmao Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about Yongmao Holdings's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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.