Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hong Kong Exchanges and Clearing Limited (HKG:388) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Hong Kong Exchanges and Clearing's shares before the 1st of September in order to receive the dividend, which the company will pay on the 15th of September.
The company's next dividend payment will be HK$7.43 per share, on the back of last year when the company paid a total of HK$14.86 to shareholders. Based on the last year's worth of payments, Hong Kong Exchanges and Clearing stock has a trailing yield of around 3.5% on the current share price of HK$422.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Hong Kong Exchanges and Clearing has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 89% 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.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
See our latest analysis for Hong Kong Exchanges and Clearing
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Hong Kong Exchanges and Clearing's earnings per share have been growing at 11% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Hong Kong Exchanges and Clearing has increased its dividend at approximately 9.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Should investors buy Hong Kong Exchanges and Clearing for the upcoming dividend? Earnings per share are growing nicely, and Hong Kong Exchanges and Clearing is paying out a percentage of its earnings that is around the average for dividend-paying stocks. Overall, Hong Kong Exchanges and Clearing looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
While it's tempting to invest in Hong Kong Exchanges and Clearing for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Hong Kong Exchanges and Clearing that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.