Is It Smart To Buy China Coal Energy Company Limited (HKG:1898) Before It Goes Ex-Dividend?
Readers hoping to buy China Coal Energy Company Limited (HKG:1898) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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. Therefore, if you purchase China Coal Energy's shares on or after the 2nd of July, you won't be eligible to receive the dividend, when it is paid on the 28th of August.
The company's next dividend payment will be CN¥0.217 per share. Last year, in total, the company distributed CN¥0.38 to shareholders. Looking at the last 12 months of distributions, China Coal Energy has a trailing yield of approximately 4.4% on its current stock price of HK$10.06. If you buy this business for its dividend, you should have an idea of whether China Coal Energy's dividend is reliable and sustainable. So we need to investigate whether China Coal Energy 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. That's why it's good to see China Coal Energy paying out a modest 29% of its earnings. 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. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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.
View our latest analysis for China Coal Energy
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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see China Coal Energy's earnings have been skyrocketing, up 25% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, China Coal Energy has lifted its dividend by approximately 29% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
From a dividend perspective, should investors buy or avoid China Coal Energy? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. China Coal Energy looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in China Coal Energy for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for China Coal Energy you should be aware of.
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.