Why You Might Be Interested In KLN Logistics Group Limited (HKG:636) For Its Upcoming Dividend

KLN Logistics Group Limited (HKG:636) is about to trade ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase KLN Logistics Group's shares before the 9th of September to receive the dividend, which will be paid on the 25th of September.

The company's upcoming dividend is HK$0.12 a share, following on from the last 12 months, when the company distributed a total of HK$0.27 per share to shareholders. Based on the last year's worth of payments, KLN Logistics Group stock has a trailing yield of around 4.7% on the current share price of HK$5.75. 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 KLN Logistics Group has been able to grow its dividends, or if the dividend might be cut.

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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. KLN Logistics Group paid out a comfortable 35% of its profit last year. A useful secondary check can be to evaluate whether KLN Logistics Group generated enough free cash flow to afford its dividend. Luckily it paid out just 21% of its free cash flow last year.

It's positive to see that KLN Logistics Group'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 KLN Logistics Group

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at KLN Logistics Group, with earnings per share up 8.6% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, KLN Logistics Group has lifted its dividend by approximately 5.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid KLN Logistics Group? Earnings per share growth has been growing somewhat, and KLN Logistics Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and KLN Logistics Group is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while KLN Logistics Group has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with KLN Logistics Group and understanding them should be part of your investment process.

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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.