Is It Smart To Buy China Development Bank Financial Leasing Co., Ltd. (HKG:1606) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
June 26, 2021
SEHK:1606
Source: Shutterstock

China Development Bank Financial Leasing Co., Ltd. (HKG:1606) 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 important as the process of settlement involves 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 China Development Bank Financial Leasing's shares before the 2nd of July in order to receive the dividend, which the company will pay on the 11th of August.

The company's next dividend payment will be CN¥0.078 per share, on the back of last year when the company paid a total of CN¥0.078 to shareholders. Looking at the last 12 months of distributions, China Development Bank Financial Leasing has a trailing yield of approximately 8.0% on its current stock price of HK$1.17. 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.

See our latest analysis for China Development Bank Financial Leasing

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. Fortunately China Development Bank Financial Leasing's payout ratio is modest, at just 30% of profit.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit China Development Bank Financial Leasing paid out over the last 12 months.

historic-dividend
SEHK:1606 Historic Dividend June 27th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see China Development Bank Financial Leasing's earnings per share have risen 18% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past four years, China Development Bank Financial Leasing has increased its dividend at approximately 8.7% 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 China Development Bank Financial Leasing worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, China Development Bank Financial Leasing appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

On that note, you'll want to research what risks China Development Bank Financial Leasing is facing. Every company has risks, and we've spotted 3 warning signs for China Development Bank Financial Leasing (of which 1 is a bit unpleasant!) 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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