Readers hoping to buy AV Concept Holdings Limited (HKG:595) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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. Accordingly, AV Concept Holdings investors that purchase the stock on or after the 8th of September will not receive the dividend, which will be paid on the 5th of October.
The company's next dividend payment will be HK$0.02 per share, on the back of last year when the company paid a total of HK$0.02 to shareholders. Based on the last year's worth of payments, AV Concept Holdings has a trailing yield of 1.6% on the current stock price of HK$1.26. If you buy this business for its dividend, you should have an idea of whether AV Concept Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. AV Concept Holdings is paying out just 7.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 paid out 7.1% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that AV Concept Holdings'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.
View our latest analysis for AV Concept Holdings
Click here to see how much of its profit AV Concept Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that AV Concept Holdings's earnings are down 2.8% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. AV Concept Holdings has delivered an average of 2.0% per year annual increase in its dividend, based on the past nine years of dividend payments.
The Bottom Line
From a dividend perspective, should investors buy or avoid AV Concept Holdings? Earnings per share are down meaningfully, 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 needs to be cut. In summary, it's hard to get excited about AV Concept Holdings from a dividend perspective.
So while AV Concept Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for AV Concept Holdings that you should be aware of before investing in their shares.
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.