Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Truly International Holdings Limited (HKG:732) is about to go ex-dividend in just 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Truly International Holdings investors that purchase the stock on or after the 31st of October will not receive the dividend, which will be paid on the 29th of November.
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$0.10 per share. Looking at the last 12 months of distributions, Truly International Holdings has a trailing yield of approximately 8.8% on its current stock price of HK$1.14. 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.
Check out our latest analysis for Truly International Holdings
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. Truly International Holdings distributed an unsustainably high 117% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Truly International Holdings generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.7% of its cash flow last year.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Truly International Holdings fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see how much of its profit Truly International Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Truly International Holdings's earnings have been skyrocketing, up 29% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Truly International Holdings has seen its dividend decline 6.2% per annum on average over the past 10 years, which is not great to see. 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
Has Truly International Holdings got what it takes to maintain its dividend payments? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Truly International Holdings is paying out so much of its profit. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Truly International Holdings's dividend merits.
So while Truly International Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Truly International Holdings is showing 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant...
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.