Readers hoping to buy China Maple Leaf Educational Systems Limited (HKG:1317) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 31st of January in order to be eligible for this dividend, which will be paid on the 13th of February.
China Maple Leaf Educational Systems's next dividend payment will be HK$0.056 per share, on the back of last year when the company paid a total of HK$0.084 to shareholders. Calculating the last year's worth of payments shows that China Maple Leaf Educational Systems has a trailing yield of 3.5% on the current share price of HK$2.97. 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 check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see China Maple Leaf Educational Systems paying out a modest 42% of its earnings. 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. Fortunately, it paid out only 35% of its free cash flow in the past year.
It's positive to see that China Maple Leaf Educational Systems'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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see China Maple Leaf Educational Systems has grown its earnings rapidly, up 54% a year for the past five years. China Maple Leaf Educational Systems is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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. China Maple Leaf Educational Systems has delivered an average of 36% per year annual increase in its dividend, based on the past five years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is China Maple Leaf Educational Systems worth buying for its dividend? China Maple Leaf Educational Systems has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. China Maple Leaf Educational Systems looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for China Maple Leaf Educational Systems? See what the 11 analysts we track 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.
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