It looks like Chow Sang Sang Holdings International Limited (HKG:116) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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, Chow Sang Sang Holdings International investors that purchase the stock on or after the 3rd of June will not receive the dividend, which will be paid on the 20th of June.
The company's next dividend payment will be HK$0.40 per share, on the back of last year when the company paid a total of HK$0.80 to shareholders. Looking at the last 12 months of distributions, Chow Sang Sang Holdings International has a trailing yield of approximately 9.6% on its current stock price of HK$8.36. If you buy this business for its dividend, you should have an idea of whether Chow Sang Sang Holdings International's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. Chow Sang Sang Holdings International paid out a comfortable 38% of its profit last year. 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. The good news is it paid out just 14% of its free cash flow in the last year.
It's positive to see that Chow Sang Sang Holdings International'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Chow Sang Sang Holdings International's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
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, 10 years ago, Chow Sang Sang Holdings International has lifted its dividend by approximately 1.6% a year on average.
To Sum It Up
Should investors buy Chow Sang Sang Holdings International for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Chow Sang Sang Holdings International 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. Generally we like to see both low payout ratios and strong earnings per share growth, but Chow Sang Sang Holdings International is halfway there. There's a lot to like about Chow Sang Sang Holdings International, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Chow Sang Sang Holdings International is facing. Every company has risks, and we've spotted 2 warning signs for Chow Sang Sang Holdings International you should know about.
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.