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 Sealand Securities Co., Ltd. (SZSE:000750) is about to go ex-dividend in just three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Sealand Securities investors that purchase the stock on or after the 3rd of June will not receive the dividend, which will be paid on the 3rd of June.
The company's upcoming dividend is CN¥0.04 a share, following on from the last 12 months, when the company distributed a total of CN¥0.04 per share to shareholders. Based on the last year's worth of payments, Sealand Securities has a trailing yield of 1.3% on the current stock price of CN¥3.17. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sealand Securities can afford its dividend, and if the dividend could grow.
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. Sealand Securities distributed an unsustainably high 134% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Click here to see how much of its profit Sealand Securities paid out over the last 12 months.
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. 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, Sealand Securities's earnings per share have been growing at 12% a year for the past five years.
Sealand Securities also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sealand Securities's dividend payments are effectively flat on where they were 10 years ago.
To Sum It Up
Is Sealand Securities worth buying for its dividend? We're not enthused to see Sealand Securities's dividend was not well covered by earnings over the last year, although it is great to see earnings growing. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Sealand Securities, you should know about the other risks facing this business. We've identified 4 warning signs with Sealand Securities (at least 1 which is a bit concerning), and understanding them should be part of your investment process.
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.