Chow Sang Sang Holdings International (HKG:116) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Chow Sang Sang Holdings International Limited (HKG:116) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Chow Sang Sang Holdings International's shares on or after the 29th of May, you won't be eligible to receive the dividend, when it is paid on the 19th of June.

The company's next dividend payment will be HK$0.36 per share, on the back of last year when the company paid a total of HK$0.51 to shareholders. Looking at the last 12 months of distributions, Chow Sang Sang Holdings International has a trailing yield of approximately 6.8% on its current stock price of HK$7.54. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Chow Sang Sang Holdings International's payout ratio is modest, at just 45% of profit. A useful secondary check can be to evaluate whether Chow Sang Sang Holdings International generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.

It's positive to see that Chow Sang Sang Holdings International'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 Chow Sang Sang Holdings International

Click here to see how much of its profit Chow Sang Sang Holdings International 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. This is why it's a relief to see Chow Sang Sang Holdings International earnings per share are up 3.9% per annum over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Chow Sang Sang Holdings International has seen its dividend decline 1.8% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Chow Sang Sang Holdings International? Earnings per share growth has been growing somewhat, and Chow Sang Sang Holdings International is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Chow Sang Sang Holdings International is halfway there. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Chow Sang Sang Holdings International is facing. In terms of investment risks, we've identified 1 warning sign with Chow Sang Sang Holdings International and understanding them should be part of your investment process.

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

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.