Shangri-La Asia Limited (HKG:69) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 23rd of September in order to be eligible for this dividend, which will be paid on the 3rd of October.
The upcoming dividend for Shangri-La Asia is HK$0.08 per share, increased from last year’s total dividends per share of US$0.028. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Shangri-La Asia has been able to grow its dividends, or if the dividend might be cut.
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. Shangri-La Asia paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. 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. Fortunately, it paid out only 31% of its free cash flow in the past year.
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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re discomforted by Shangri-La Asia’s 19% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Shangri-La Asia’s dividend payments per share have declined at 1.0% per year on average over the past ten years, which is uninspiring.
From a dividend perspective, should investors buy or avoid Shangri-La Asia? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Shangri-La Asia looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
Wondering what the future holds for Shangri-La Asia? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.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.