Should You Buy China Overseas Property Holdings Limited (HKG:2669) For Its Upcoming Dividend?

China Overseas Property Holdings Limited (HKG:2669) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase China Overseas Property Holdings' shares on or after the 14th of September will not receive the dividend, which will be paid on the 6th of October.

The company's next dividend payment will be HK$0.055 per share. Last year, in total, the company distributed HK$0.14 to shareholders. Calculating the last year's worth of payments shows that China Overseas Property Holdings has a trailing yield of 1.4% on the current share price of HK$9.44. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for China Overseas Property Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China Overseas Property Holdings paid out a comfortable 30% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that China Overseas Property 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 the company's payout ratio, plus analyst estimates of its future dividends.

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 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 China Overseas Property Holdings's earnings have been skyrocketing, up 37% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. 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. China Overseas Property Holdings has delivered an average of 41% per year annual increase in its dividend, based on the past seven years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy China Overseas Property Holdings for the upcoming dividend? China Overseas Property Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. China Overseas Property Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Curious what other investors think of China Overseas Property Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.