Readers hoping to buy Fanhua Inc. (NASDAQ:FANH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 4th of December in order to receive the dividend, which the company will pay on the 19th of December.
Fanhua's upcoming dividend is US$0.29 a share, following on from the last 12 months, when the company distributed a total of US$8.37 per share to shareholders. Calculating the last year's worth of payments shows that Fanhua has a trailing yield of 4.5% on the current share price of $26.55. If you buy this business for its dividend, you should have an idea of whether Fanhua's dividend is reliable and sustainable. As a result, readers should always check whether Fanhua has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Fanhua has grown its earnings rapidly, up 38% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fanhua has delivered an average of 19% per year annual increase in its dividend, based on the past ten years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
From a dividend perspective, should investors buy or avoid Fanhua? Earnings per share are growing nicely, and Fanhua is paying out a percentage of its earnings that is around the average for dividend-paying stocks. In summary, Fanhua appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Wondering what the future holds for Fanhua? See what the two 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.