Readers hoping to buy Sun Art Retail Group Limited (HKG:6808) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 18th of May, you won't be eligible to receive this dividend, when it is paid on the 10th of July.
The upcoming dividend for Sun Art Retail Group will put a total of HK$0.15 per share in shareholders' pockets, up from last year's total dividends of HK$0.14. 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 Sun Art Retail Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Sun Art Retail Group paying out a modest 47% of its earnings. 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. It distributed 25% of its free cash flow as dividends, a comfortable payout level 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.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Sun Art Retail Group'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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past eight years, Sun Art Retail Group has increased its dividend at approximately 6.9% a year on average.
Is Sun Art Retail Group worth buying for its dividend? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Curious what other investors think of Sun Art Retail Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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