TK Group (Holdings) Limited (HKG:2283) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase TK Group (Holdings)'s shares on or after the 4th 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$0.175 per share, on the back of last year when the company paid a total of HK$0.10 to shareholders. Based on the last year's worth of payments, TK Group (Holdings) has a trailing yield of 5.0% on the current stock price of HK$2.05. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for TK Group (Holdings)
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. TK Group (Holdings) paid out a comfortable 42% of its profit last year. 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. It distributed 25% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that TK Group (Holdings)'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?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see TK Group (Holdings)'s earnings per share have dropped 10% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TK Group (Holdings) has delivered an average of 19% per year annual increase in its dividend, based on the past 10 years of dividend payments.
Final Takeaway
Is TK Group (Holdings) worth buying for its dividend? TK Group (Holdings) has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, while it has some positive characteristics, we're not inclined to race out and buy TK Group (Holdings) today.
While it's tempting to invest in TK Group (Holdings) for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for TK Group (Holdings) you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.