Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Pico Far East Holdings Limited (HKG:752) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Pico Far East Holdings' shares before the 25th of March in order to be eligible for the dividend, which will be paid on the 21st of May.
The company's upcoming dividend is HK$0.11 a share, following on from the last 12 months, when the company distributed a total of HK$0.13 per share to shareholders. Based on the last year's worth of payments, Pico Far East Holdings stock has a trailing yield of around 6.4% on the current share price of HK$2.03. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. That's why it's good to see Pico Far East Holdings paying out a modest 45% 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. The good news is it paid out just 17% of its free cash flow in the last year.
It's positive to see that Pico Far East 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.
View our latest analysis for Pico Far East Holdings
Click here to see how much of its profit Pico Far East 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. This is why it's a relief to see Pico Far East Holdings earnings per share are up 6.6% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Pico Far East Holdings has lifted its dividend by approximately 2.2% 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
Is Pico Far East Holdings an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Pico Far East Holdings 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. It might be nice to see earnings growing faster, but Pico Far East Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. Pico Far East Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Pico Far East Holdings for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Pico Far East Holdings you should be aware of.
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.