Readers hoping to buy Vanke Overseas Investment Holding Company Limited (HKG:1036) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Vanke Overseas Investment Holding’s shares before the 29th of June in order to be eligible for the dividend, which will be paid on the 13th of July.
The company’s next dividend payment will be HK$0.09 per share. Last year, in total, the company distributed HK$0.09 to shareholders. Last year’s total dividend payments show that Vanke Overseas Investment Holding has a trailing yield of 4.0% on the current share price of HK$2.26. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Vanke Overseas Investment Holding can afford its dividend, and if the dividend could grow.
See our latest analysis for Vanke Overseas Investment Holding
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. Vanke Overseas Investment Holding is paying out just 8.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 37% of its free cash flow as dividends, a comfortable payout level for most companies.
It’s positive to see that Vanke Overseas Investment Holding’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 how much of its profit Vanke Overseas Investment Holding 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. It’s encouraging to see Vanke Overseas Investment Holding has grown its earnings rapidly, up 26% a year for the past five years. Vanke Overseas Investment Holding is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favorable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Vanke Overseas Investment Holding has seen its dividend decline 17% per annum on average over the past 10 years, which is not great to see. 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.
The Bottom Line
From a dividend perspective, should investors buy or avoid Vanke Overseas Investment Holding? Vanke Overseas Investment Holding has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Vanke Overseas Investment Holding looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
While it’s tempting to invest in Vanke Overseas Investment Holding for the dividends alone, you should always be mindful of the risks involved. In terms of investment risk, we’ve identified 2 warning signs with Vanke Overseas Investment Holding 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.