It looks like SH Group (Holdings) Limited (HKG:1637) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 1st of September in order to be eligible for this dividend, which will be paid on the 18th of September.
SH Group (Holdings)'s next dividend payment will be HK$0.017 per share. Last year, in total, the company distributed HK$0.017 to shareholders. Calculating the last year's worth of payments shows that SH Group (Holdings) has a trailing yield of 5.3% on the current share price of HK$0.32. If you buy this business for its dividend, you should have an idea of whether SH Group (Holdings)'s dividend is reliable and sustainable. As a result, readers should always check whether SH Group (Holdings) has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately SH Group (Holdings)'s payout ratio is modest, at just 26% of profit. 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. The good news is it paid out just 10% of its free cash flow in the last 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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, SH Group (Holdings)'s earnings per share have been growing at 11% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SH Group (Holdings) has seen its dividend decline 12% per annum on average over the past two years, which is not great to see. SH Group (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.
To Sum It Up
Is SH Group (Holdings) worth buying for its dividend? It's great that SH Group (Holdings) is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. SH Group (Holdings) looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks SH Group (Holdings) is facing. To help with this, we've discovered 2 warning signs for SH Group (Holdings) that you should be aware of before investing in their shares.
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.
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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. 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.
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