Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Winson Holdings Hong Kong Limited (HKG:8421) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 12th of August will not receive the dividend, which will be paid on the 29th of August.
Winson Holdings Hong Kong's next dividend payment will be HK$0.017 per share, on the back of last year when the company paid a total of HK$0.017 to shareholders. Calculating the last year's worth of payments shows that Winson Holdings Hong Kong has a trailing yield of 3.7% on the current share price of HK$0.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Winson Holdings Hong Kong 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. That's why it's good to see Winson Holdings Hong Kong paying out a modest 48% of its earnings. 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. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Winson Holdings Hong Kong'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?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Winson Holdings Hong Kong's earnings per share have dropped 6.0% a year over the past three years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Given that Winson Holdings Hong Kong 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
Has Winson Holdings Hong Kong got what it takes to maintain its dividend payments? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. In summary, while it has some positive characteristics, we're not inclined to race out and buy Winson Holdings Hong Kong today.
Want to learn more about Winson Holdings Hong Kong's dividend performance? Check out this visualisation 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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