Transport International Holdings Limited (HKG:62) stock is about to trade ex-dividend in 2 days time. Investors can purchase shares before the 25th of May in order to be eligible for this dividend, which will be paid on the 30th of June.
Transport International Holdings's next dividend payment will be HK$0.70 per share. Last year, in total, the company distributed HK$1.00 to shareholders. Based on the last year's worth of payments, Transport International Holdings stock has a trailing yield of around 6.1% on the current share price of HK$16.36. If you buy this business for its dividend, you should have an idea of whether Transport International Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Transport International Holdings paid out more than half (73%) of its earnings last year, which is a regular payout ratio for most companies. 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. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Transport International 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.
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 Transport International Holdings earnings per share are up 6.0% per annum over the last five years. Decent historical earnings per share growth suggests Transport International Holdings has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Transport International Holdings's dividend payments per share have declined at 3.0% per year on average over the past ten years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Is Transport International Holdings an attractive dividend stock, or better left on the shelf? While earnings per share growth has been modest, Transport International Holdings's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
While it's tempting to invest in Transport International Holdings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Transport International Holdings that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.