FSE Services Group Limited (HKG:331) Looks Interesting, And It's About To Pay A Dividend

It looks like FSE Services Group Limited (HKG:331) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 24th of November will not receive this dividend, which will be paid on the 7th of December.

FSE Services Group's upcoming dividend is HK$0.14 a share, following on from the last 12 months, when the company distributed a total of HK$0.29 per share to shareholders. Last year's total dividend payments show that FSE Services Group has a trailing yield of 7.8% on the current share price of HK$3.69. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for FSE Services Group

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. FSE Services Group paid out a comfortable 40% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 25% of its free cash flow in the last year.

It's positive to see that FSE Services Group'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.

Click here to see how much of its profit FSE Services Group paid out over the last 12 months.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at FSE Services Group, with earnings per share up 8.9% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, FSE Services Group has lifted its dividend by approximately 24% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is FSE Services Group an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and FSE Services Group is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but FSE Services Group is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about FSE Services Group, and we would prioritise taking a closer look at it.

In light of that, while FSE Services Group has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for FSE Services Group you should know about.

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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