Income Investors Should Know That TK Group (Holdings) Limited (HKG:2283) Goes Ex-Dividend Soon

TK Group (Holdings) Limited (HKG:2283) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 9th of September to receive the dividend, which will be paid on the 27th of September.

TK Group (Holdings)'s upcoming dividend is HK$0.05 a share, following on from the last 12 months, when the company distributed a total of HK$0.20 per share to shareholders. Last year's total dividend payments show that TK Group (Holdings) has a trailing yield of 5.7% on the current share price of HK$3.5. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for TK Group (Holdings)

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. TK Group (Holdings) paid out a comfortable 49% of its profit last year. 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. The company paid out 100% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

While TK Group (Holdings)'s dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to TK Group (Holdings)'s ability to maintain its dividend.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, TK Group (Holdings)'s earnings per share have been growing at 12% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TK Group (Holdings) has delivered 62% dividend growth per year on average over the past five years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

From a dividend perspective, should investors buy or avoid TK Group (Holdings)? We like that TK Group (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. Overall, it's hard to get excited about TK Group (Holdings) from a dividend perspective.

Wondering what the future holds for TK Group (Holdings)? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.