It looks like HK Electric Investments and HK Electric Investments Limited (HKG:2638) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. Thus, you can purchase HK Electric Investments and HK Electric Investments' shares before the 25th of August in order to receive the dividend, which the company will pay on the 8th of September.
The company's next dividend payment will be HK$0.1594 per share, on the back of last year when the company paid a total of HK$0.32 to shareholders. Based on the last year's worth of payments, HK Electric Investments and HK Electric Investments stock has a trailing yield of around 4.9% on the current share price of HK$6.54. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's 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. Its dividend payout ratio is 90% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. 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. Over the last year, it paid out more than three-quarters (83%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
See our latest analysis for HK Electric Investments and HK Electric Investments
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at HK Electric Investments and HK Electric Investments, with earnings per share up 2.9% on average over the last five years. A payout ratio of 90% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. HK Electric Investments and HK Electric Investments has seen its dividend decline 2.3% 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.
Final Takeaway
Is HK Electric Investments and HK Electric Investments an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and HK Electric Investments and HK Electric Investments paid out a bit over half of its earnings and free cash flow last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy HK Electric Investments and HK Electric Investments today.
However if you're still interested in HK Electric Investments and HK Electric Investments as a potential investment, you should definitely consider some of the risks involved with HK Electric Investments and HK Electric Investments. Be aware that HK Electric Investments and HK Electric Investments is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.