Readers hoping to buy VSTECS Holdings Limited (HKG:856) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase VSTECS Holdings' shares on or after the 6th of June, you won't be eligible to receive the dividend, when it is paid on the 12th of July.
The company's upcoming dividend is HK$0.257 a share, following on from the last 12 months, when the company distributed a total of HK$0.26 per share to shareholders. Looking at the last 12 months of distributions, VSTECS Holdings has a trailing yield of approximately 5.6% on its current stock price of HK$4.61. 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! So we need to investigate whether VSTECS Holdings can afford its dividend, and if the dividend could grow.
See our latest analysis for VSTECS Holdings
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see VSTECS Holdings paying out a modest 39% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 41% 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.
Click here to see how much of its profit VSTECS Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at VSTECS Holdings, with earnings per share up 4.5% on average over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. VSTECS Holdings has delivered 12% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is VSTECS Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and VSTECS Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and VSTECS Holdings is halfway there. There's a lot to like about VSTECS Holdings, and we would prioritise taking a closer look at it.
While it's tempting to invest in VSTECS Holdings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for VSTECS Holdings (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.