BOC Hong Kong (Holdings) Limited (HKG:2388) is about to trade ex-dividend in the next three 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. Accordingly, BOC Hong Kong (Holdings) investors that purchase the stock on or after the 12th of September will not receive the dividend, which will be paid on the 27th of September.
The company's upcoming dividend is HK$0.57 a share, following on from the last 12 months, when the company distributed a total of HK$1.67 per share to shareholders. Based on the last year's worth of payments, BOC Hong Kong (Holdings) has a trailing yield of 6.9% on the current stock price of HK$24.30. 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 investigate whether BOC Hong Kong (Holdings) can afford its dividend, and if the dividend could grow.
View our latest analysis for BOC Hong Kong (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. BOC Hong Kong (Holdings) paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at BOC Hong Kong (Holdings), with earnings per share up 2.2% on average over the last five years.
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, BOC Hong Kong (Holdings) has lifted its dividend by approximately 5.2% a year on average. 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.
The Bottom Line
Has BOC Hong Kong (Holdings) got what it takes to maintain its dividend payments? BOC Hong Kong (Holdings) has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.
With that being said, if dividends aren't your biggest concern with BOC Hong Kong (Holdings), you should know about the other risks facing this business. Every company has risks, and we've spotted 1 warning sign for BOC Hong Kong (Holdings) you should know about.
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.