EVA Precision Industrial Holdings (HKG:838) Could Be A Buy For Its Upcoming Dividend

EVA Precision Industrial Holdings Limited (HKG:838) stock is about to trade ex-dividend in three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase EVA Precision Industrial Holdings' shares before the 22nd of May in order to receive the dividend, which the company will pay on the 12th of June.

The company's next dividend payment will be HK$0.02 per share, on the back of last year when the company paid a total of HK$0.042 to shareholders. Calculating the last year's worth of payments shows that EVA Precision Industrial Holdings has a trailing yield of 5.7% on the current share price of HK$0.74. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether EVA Precision Industrial Holdings has been able to grow its dividends, or if the dividend might be cut.

We've discovered 1 warning sign about EVA Precision Industrial Holdings. View them for free.

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. EVA Precision Industrial Holdings paid out a comfortable 30% of its profit last year. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.

It's positive to see that EVA Precision Industrial Holdings'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.

See our latest analysis for EVA Precision Industrial Holdings

Click here to see how much of its profit EVA Precision Industrial Holdings paid out over the last 12 months.

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. That's why it's comforting to see EVA Precision Industrial Holdings's earnings have been skyrocketing, up 36% per annum for the past five years. EVA Precision Industrial Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. EVA Precision Industrial Holdings has seen its dividend decline 2.5% per annum on average over the past 10 years, which is not great to see. EVA Precision Industrial 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.

The Bottom Line

Is EVA Precision Industrial Holdings worth buying for its dividend? EVA Precision Industrial Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 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.

While it's tempting to invest in EVA Precision Industrial Holdings for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for EVA Precision Industrial Holdings you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.