Hong Kong Ferry (Holdings) Company Limited (HKG:50) stock is about to trade ex-dividend in 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Hong Kong Ferry (Holdings) investors that purchase the stock on or after the 3rd of June will not receive the dividend, which will be paid on the 23rd of June.
The company’s next dividend payment will be HK$0.15 per share, on the back of last year when the company paid a total of HK$0.25 to shareholders. Based on the last year’s worth of payments, Hong Kong Ferry (Holdings) stock has a trailing yield of around 4.9% on the current share price of HK$5.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are 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. Hong Kong Ferry (Holdings) paid out a comfortable 27% of its profit last year. A useful secondary check can be to evaluate whether Hong Kong Ferry (Holdings) generated enough free cash flow to afford its dividend. Hong Kong Ferry (Holdings) paid out more free cash flow than it generated – 142%, to be precise – last year, which we think is concerningly high. We’re curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Hong Kong Ferry (Holdings) does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Hong Kong Ferry (Holdings) paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Hong Kong Ferry (Holdings)’s ability to maintain its dividend.
Check out our latest analysis for Hong Kong Ferry (Holdings)
Click here to see how much of its profit Hong Kong Ferry (Holdings) 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s comforting to see Hong Kong Ferry (Holdings)’s earnings have been skyrocketing, up 66% per annum for the past five years. Earnings have been growing quickly, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Hong Kong Ferry (Holdings)’s dividend payments per share have declined at 3.6% per year on average over the past 10 years, which is uninspiring. Hong Kong Ferry (Holdings) 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
Should investors buy Hong Kong Ferry (Holdings) for the upcoming dividend? We like that Hong Kong Ferry (Holdings) has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we’re not all that optimistic on its dividend prospects.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we’ve identified 2 warning signs with Hong Kong Ferry (Holdings) and understanding them should be part of your investment process.
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.
Valuation is complex, but we’re here to simplify it.
Discover if Hong Kong Ferry (Holdings) might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
