Sanbase Corporation Limited (HKG:8501) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 13th of September to receive the dividend, which will be paid on the 11th of October.
Sanbase's upcoming dividend is HK$0.031 a share, following on from the last 12 months, when the company distributed a total of HK$0.031 per share to shareholders. Based on the last year's worth of payments, Sanbase stock has a trailing yield of around 2.8% on the current share price of HK$1.11. If you buy this business for its dividend, you should have an idea of whether Sanbase's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sanbase paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 11% of its cash flow last year.
It's positive to see that Sanbase'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?
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 earnings fall far enough, the company could be forced to cut its dividend. That's why we're optimistic about Sanbase's earnings, which have ripped higher, up 104% over the past year. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Sanbase looks like a promising growth company.
One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.
Given that Sanbase has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
Should investors buy Sanbase for the upcoming dividend? Sanbase 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. It's a promising combination that should mark this company worthy of closer attention.
Curious about whether Sanbase has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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