Readers hoping to buy Chow Sang Sang Holdings International Limited (HKG:116) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Chow Sang Sang Holdings International's shares on or after the 3rd of June, you won't be eligible to receive the dividend, when it is paid on the 20th of June.
The company's next dividend payment will be HK$0.40 per share. Last year, in total, the company distributed HK$0.80 to shareholders. Last year's total dividend payments show that Chow Sang Sang Holdings International has a trailing yield of 9.6% on the current share price of HK$8.36. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Chow Sang Sang Holdings International
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Chow Sang Sang Holdings International's payout ratio is modest, at just 38% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.
It's positive to see that Chow Sang Sang Holdings International'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. 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 not encouraging to see that Chow Sang Sang Holdings International's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Chow Sang Sang Holdings International has lifted its dividend by approximately 1.6% a year on average.
The Bottom Line
Is Chow Sang Sang Holdings International worth buying for its dividend? Earnings per share have been flat over this time, but we're intrigued to see that Chow Sang Sang Holdings International is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Chow Sang Sang Holdings International is halfway there. Chow Sang Sang Holdings International looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Chow Sang Sang Holdings International has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Chow Sang Sang Holdings International that we recommend you consider before investing in the business.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.