Binhai Investment Company Limited (HKG:2886) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Binhai Investment's shares before the 13th of May in order to receive the dividend, which the company will pay on the 10th of June.
The company's next dividend payment will be HK$0.076 per share, on the back of last year when the company paid a total of HK$0.076 to shareholders. Based on the last year's worth of payments, Binhai Investment has a trailing yield of 6.8% on the current stock price of HK$1.11. If you buy this business for its dividend, you should have an idea of whether Binhai Investment's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Our free stock report includes 2 warning signs investors should be aware of before investing in Binhai Investment. Read for free now.Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Binhai Investment paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 30% of its free cash flow in the past year.
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.
Check out our latest analysis for Binhai Investment
Click here to see how much of its profit Binhai Investment 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Binhai Investment's earnings per share have been growing at 16% a year for the past five years. Binhai Investment has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Binhai Investment has delivered an average of 4.8% per year annual increase in its dividend, based on the past nine years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Binhai Investment is keeping back more of its profits to grow the business.
To Sum It Up
Should investors buy Binhai Investment for the upcoming dividend? Binhai Investment's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Binhai Investment is facing. For instance, we've identified 2 warning signs for Binhai Investment (1 is significant) you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.