VSTECS Holdings (HKG:856) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy VSTECS Holdings Limited (HKG:856) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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, VSTECS Holdings investors that purchase the stock on or after the 28th of May will not receive the dividend, which will be paid on the 3rd of July.
The company's next dividend payment will be HK$0.4177 per share. Last year, in total, the company distributed HK$0.42 to shareholders. Calculating the last year's worth of payments shows that VSTECS Holdings has a trailing yield of 4.1% on the current share price of HK$10.26. If you buy this business for its dividend, you should have an idea of whether VSTECS Holdings's dividend is reliable and sustainable. As a result, readers should always check whether VSTECS Holdings 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. VSTECS Holdings paid out a comfortable 43% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.
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 VSTECS Holdings
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 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 VSTECS Holdings, with earnings per share up 4.6% on average over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, VSTECS Holdings has increased its dividend at approximately 13% 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.
Final Takeaway
Has VSTECS Holdings got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and VSTECS Holdings 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. It might be nice to see earnings growing faster, but VSTECS Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. VSTECS Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in VSTECS Holdings for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for VSTECS Holdings you should be aware of.
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.
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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.