There's A Lot To Like About Mainland Headwear Holdings' (HKG:1100) Upcoming HK$0.06 Dividend

Mainland Headwear Holdings Limited (HKG:1100) stock is about to trade ex-dividend in three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Mainland Headwear Holdings' shares before the 30th of May in order to receive the dividend, which the company will pay on the 23rd of June.

The company's next dividend payment will be HK$0.06 per share, on the back of last year when the company paid a total of HK$0.09 to shareholders. Last year's total dividend payments show that Mainland Headwear Holdings has a trailing yield of 4.6% on the current share price of HK$1.96. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Mainland Headwear Holdings can afford its dividend, and if the dividend could grow.

See our latest analysis for Mainland Headwear Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mainland Headwear Holdings is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Mainland Headwear Holdings generated enough free cash flow to afford its dividend. Luckily it paid out just 22% of its free cash flow last year.

It's positive to see that Mainland Headwear 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.

Click here to see how much of its profit Mainland Headwear 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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Mainland Headwear Holdings's earnings have been skyrocketing, up 20% per annum for the past five years. Mainland Headwear Holdings looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mainland Headwear Holdings has delivered an average of 9.0% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Mainland Headwear Holdings an attractive dividend stock, or better left on the shelf? Mainland Headwear 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.

So while Mainland Headwear Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Mainland Headwear Holdings has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.