Virscend Education Company Limited (HKG:1565) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 29th of October in order to be eligible for this dividend, which will be paid on the 20th of November.
Virscend Education's upcoming dividend is HK$0.04 a share, following on from the last 12 months, when the company distributed a total of HK$0.07 per share to shareholders. Calculating the last year's worth of payments shows that Virscend Education has a trailing yield of 3.3% on the current share price of HK$2.39. If you buy this business for its dividend, you should have an idea of whether Virscend Education's dividend is reliable and sustainable. So we need to investigate whether Virscend Education can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Virscend Education is paying out an acceptable 58% of its profit, a common payout level among most companies. 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. It paid out 81% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Virscend Education's earnings have been skyrocketing, up 36% per annum 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. In the past two years, Virscend Education has increased its dividend at approximately 14% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Virscend Education an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Virscend Education's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 58% and 81% respectively. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Curious what other investors think of Virscend Education? See what analysts 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.
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