Why You Might Be Interested In Hong Kong Shanghai Alliance Holdings Limited (HKG:1001) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hong Kong Shanghai Alliance Holdings Limited (HKG:1001) 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 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. Accordingly, Hong Kong Shanghai Alliance Holdings investors that purchase the stock on or after the 25th of August will not receive the dividend, which will be paid on the 8th of September.
The company's upcoming dividend is HK$0.0135 a share, following on from the last 12 months, when the company distributed a total of HK$0.033 per share to shareholders. Last year's total dividend payments show that Hong Kong Shanghai Alliance Holdings has a trailing yield of 8.7% on the current share price of HK$0.385. 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 Hong Kong Shanghai Alliance 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. Hong Kong Shanghai Alliance Holdings has a low and conservative payout ratio of just 20% of its income after tax. 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 7.5% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Hong Kong Shanghai Alliance 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 Hong Kong Shanghai Alliance Holdings
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Hong Kong Shanghai Alliance Holdings's earnings have been skyrocketing, up 130% per annum for the past five years. Hong Kong Shanghai Alliance Holdings looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hong Kong Shanghai Alliance Holdings has seen its dividend decline 8.9% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Final Takeaway
Has Hong Kong Shanghai Alliance Holdings got what it takes to maintain its dividend payments? Hong Kong Shanghai Alliance Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Hong Kong Shanghai Alliance Holdings, and we would prioritise taking a closer look at it.
So while Hong Kong Shanghai Alliance Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 3 warning signs for Hong Kong Shanghai Alliance Holdings you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.