It looks like Yuzhou Properties Company Limited (HKG:1628) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 23rd of September, you won’t be eligible to receive this dividend, when it is paid on the 28th of November.
Yuzhou Properties’s next dividend payment will be HK$0.1 per share, on the back of last year when the company paid a total of CN¥0.28 to shareholders. Looking at the last 12 months of distributions, Yuzhou Properties has a trailing yield of approximately 9.3% on its current stock price of HK$3.49. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. That’s why it’s good to see Yuzhou Properties paying out a modest 36% of its earnings. 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. Luckily it paid out just 22% of its free cash flow last year.
It’s positive to see that Yuzhou Properties’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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we’re glad to see Yuzhou Properties’s earnings per share have risen 13% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Yuzhou Properties also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Yuzhou Properties has lifted its dividend by approximately 23% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Has Yuzhou Properties got what it takes to maintain its dividend payments? Yuzhou Properties has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. It’s a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for Yuzhou Properties? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting 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.