Swire Pacific Limited (HKG:19) Pays A HK$1.25 Dividend In Just Four Days

Swire Pacific Limited (HKG:19) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Swire Pacific's shares before the 11th of September in order to receive the dividend, which the company will pay on the 10th of October.

The company's next dividend payment will be HK$1.25 per share, on the back of last year when the company paid a total of HK$3.20 to shareholders. Based on the last year's worth of payments, Swire Pacific stock has a trailing yield of around 5.0% on the current share price of HK$64.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Swire Pacific can afford its dividend, and if the dividend could grow.

See our latest analysis for Swire Pacific

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. Swire Pacific is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out an unsustainably high 287% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Swire Pacific is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Swire Pacific'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 Swire Pacific'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?

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Swire Pacific earnings per share are up 5.4% per annum over the last five years. Earnings have been growing at a steady 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. Swire Pacific's dividend payments per share have declined at 0.9% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Is Swire Pacific worth buying for its dividend? Swire Pacific delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 287% of its cash flow over the last year, which is a mediocre outcome. 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.

If you want to look further into Swire Pacific, it's worth knowing the risks this business faces. For example, Swire Pacific has 4 warning signs (and 1 which can't be ignored) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.