Greentown China Holdings Limited (HKG:3900) Looks Interesting, And It's About To Pay A Dividend

It looks like Greentown China Holdings Limited (HKG:3900) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Accordingly, Greentown China Holdings investors that purchase the stock on or after the 25th of June will not receive the dividend, which will be paid on the 31st of July.

The company's upcoming dividend is CN¥0.30 a share, following on from the last 12 months, when the company distributed a total of CN¥0.30 per share to shareholders. Looking at the last 12 months of distributions, Greentown China Holdings has a trailing yield of approximately 3.5% on its current stock price of HK$9.39. 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.

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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. That's why it's good to see Greentown China Holdings paying out a modest 48% of its earnings. 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. The good news is it paid out just 3.8% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Check out our latest analysis for Greentown China Holdings

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. With that in mind, we're encouraged by the steady growth at Greentown China Holdings, with earnings per share up 2.7% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, eight years ago, Greentown China Holdings has lifted its dividend by approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Greentown China Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Greentown China Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Greentown China Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

So while Greentown China Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Greentown China Holdings has 4 warning signs we think you should be aware of.

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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.