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 FSE Lifestyle Services Limited (HKG:331) is about to go ex-dividend in just 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, FSE Lifestyle Services investors that purchase the stock on or after the 11th of March will not receive the dividend, which will be paid on the 28th of March.
The company's next dividend payment will be HK$0.224 per share. Last year, in total, the company distributed HK$0.44 to shareholders. Looking at the last 12 months of distributions, FSE Lifestyle Services has a trailing yield of approximately 7.7% on its current stock price of HK$5.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. Fortunately FSE Lifestyle Services's payout ratio is modest, at just 40% of profit. A useful secondary check can be to evaluate whether FSE Lifestyle Services generated enough free cash flow to afford its dividend. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Fortunately for readers, FSE Lifestyle Services's earnings per share have been growing at 16% a year for the past five years. FSE Lifestyle Services has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, eight years ago, FSE Lifestyle Services has lifted its dividend by approximately 20% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
Is FSE Lifestyle Services worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, FSE Lifestyle Services paid out less than half its earnings and a bit over half its free 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 FSE Lifestyle Services is facing. To help with this, we've discovered 1 warning sign for FSE Lifestyle Services that you should be aware of before investing in their shares.
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.