Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Keck Seng Investments (Hong Kong) Limited (HKG:184) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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 Keck Seng Investments (Hong Kong)'s shares on or after the 8th of October, you won't be eligible to receive the dividend, when it is paid on the 31st of October.
The company's next dividend payment will be HK$0.05 per share, and in the last 12 months, the company paid a total of HK$0.13 per share. Last year's total dividend payments show that Keck Seng Investments (Hong Kong) has a trailing yield of 5.8% on the current share price of HK$2.25. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Keck Seng Investments (Hong Kong)
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. Keck Seng Investments (Hong Kong) has a low and conservative payout ratio of just 17% of its income after tax. 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 paid out 16% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Keck Seng Investments (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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Keck Seng Investments (Hong Kong) earnings per share are up 5.9% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Keck Seng Investments (Hong Kong)'s dividend payments per share have declined at 3.2% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Final Takeaway
Is Keck Seng Investments (Hong Kong) an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Keck Seng Investments (Hong Kong) 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. 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 Keck Seng Investments (Hong Kong) is halfway there. There's a lot to like about Keck Seng Investments (Hong Kong), and we would prioritise taking a closer look at it.
While it's tempting to invest in Keck Seng Investments (Hong Kong) for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for Keck Seng Investments (Hong Kong) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.