Income Investors Should Know That Tan Chong International Limited (HKG:693) Goes Ex-Dividend Soon
Tan Chong International Limited (HKG:693) stock is about to trade ex-dividend in 3 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Tan Chong International's shares before the 28th of May to receive the dividend, which will be paid on the 24th of June.
The company's next dividend payment will be HK$0.06 per share. Last year, in total, the company distributed HK$0.08 to shareholders. Based on the last year's worth of payments, Tan Chong International has a trailing yield of 4.7% on the current stock price of HK$1.70. If you buy this business for its dividend, you should have an idea of whether Tan Chong International's dividend is reliable and sustainable. So we need to investigate whether Tan Chong International can afford its dividend, and if the dividend could grow.
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. Tan Chong International distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.
It's good to see that while Tan Chong International's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Check out our latest analysis for Tan Chong International
Click here to see how much of its profit Tan Chong International paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Tan Chong International has grown its earnings rapidly, up 72% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tan Chong International has seen its dividend decline 2.7% per annum on average over the past 10 years, which is not great to see. Tan Chong International is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
Is Tan Chong International an attractive dividend stock, or better left on the shelf? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Tan Chong International is paying out so much of its profit. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tan Chong International today.
While it's tempting to invest in Tan Chong International for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 4 warning signs we've spotted with Tan Chong International (including 1 which is a bit unpleasant).
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.