Shanghai Industrial Holdings Limited (HKG:363) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 27th of May will not receive this dividend, which will be paid on the 12th of June.
Shanghai Industrial Holdings's next dividend payment will be HK$0.52 per share, and in the last 12 months, the company paid a total of HK$0.52 per share. Based on the last year's worth of payments, Shanghai Industrial Holdings stock has a trailing yield of around 4.2% on the current share price of HK$12.32. If you buy this business for its dividend, you should have an idea of whether Shanghai Industrial 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.
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. Shanghai Industrial Holdings has a low and conservative payout ratio of just 17% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last 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.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Shanghai Industrial Holdings's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Shanghai Industrial Holdings is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shanghai Industrial Holdings has seen its dividend decline 4.7% per annum on average over the past ten years, which is not great to see.
Has Shanghai Industrial Holdings got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Shanghai Industrial Holdings 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 Shanghai Industrial Holdings is halfway there. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Shanghai Industrial Holdings is facing. To help with this, we've discovered 2 warning signs for Shanghai Industrial Holdings (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.