China Tobacco International (HK) Company Limited (HKG:6055) Passed Our Checks, And It's About To Pay A HK$0.19 Dividend
It looks like China Tobacco International (HK) Company Limited (HKG:6055) is about to go ex-dividend in the next 4 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase China Tobacco International (HK)'s shares on or after the 9th of September, you won't be eligible to receive the dividend, when it is paid on the 25th of September.
The company's next dividend payment will be HK$0.19 per share, and in the last 12 months, the company paid a total of HK$0.52 per share. Based on the last year's worth of payments, China Tobacco International (HK) stock has a trailing yield of around 2.1% on the current share price of HK$24.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. China Tobacco International (HK) paid out a comfortable 40% of its profit last year. A useful secondary check can be to evaluate whether China Tobacco International (HK) generated enough free cash flow to afford its dividend. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that China Tobacco International (HK)'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 China Tobacco International (HK)
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see China Tobacco International (HK) has grown its earnings rapidly, up 53% a year for the past five years. China Tobacco International (HK) is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last six years, China Tobacco International (HK) has lifted its dividend by approximately 22% 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
Is China Tobacco International (HK) worth buying for its dividend? China Tobacco International (HK) has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past six years, but the conservative payout ratio makes the current dividend look sustainable. China Tobacco International (HK) looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of China Tobacco International (HK)? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.