Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Mi Ming Mart Holdings Limited (HKG:8473) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 27th of August in order to be eligible for this dividend, which will be paid on the 20th of September.
Mi Ming Mart Holdings's upcoming dividend is HK$0.006 a share, following on from the last 12 months, when the company distributed a total of HK$0.012 per share to shareholders. Last year's total dividend payments show that Mi Ming Mart Holdings has a trailing yield of 4.9% on the current share price of HK$0.246. If you buy this business for its dividend, you should have an idea of whether Mi Ming Mart Holdings's dividend is reliable and sustainable. So we need to investigate whether Mi Ming Mart Holdings can afford its dividend, and if the dividend could grow.
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. Mi Ming Mart Holdings is paying out an acceptable 60% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Mi Ming Mart Holdings generated enough free cash flow to afford its dividend. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.
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.
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. For that reason, it's encouraging to see Mi Ming Mart Holdings's earnings over the past year have risen 2.00973. 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. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.
We'd also point out that Mi Ming Mart Holdings issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Unfortunately Mi Ming Mart Holdings has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
Has Mi Ming Mart Holdings got what it takes to maintain its dividend payments? We like Mi Ming Mart Holdings's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Mi Ming Mart Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Want to learn more about Mi Ming Mart Holdings? Here's a visualisation of its historical rate of 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.
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