Chuang's China Investments Limited (HKG:298) Pays A HK$0.015 Dividend In Just Three Days

Chuang's China Investments Limited (HKG:298) stock is about to trade ex-dividend in three days. Ex-dividend means that investors that purchase the stock on or after the 18th of December will not receive this dividend, which will be paid on the 18th of January.

Chuang's China Investments's next dividend payment will be HK$0.015 per share, and in the last 12 months, the company paid a total of HK$0.03 per share. Looking at the last 12 months of distributions, Chuang's China Investments has a trailing yield of approximately 7.1% on its current stock price of HK$0.425. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Chuang's China Investments

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Chuang's China Investments paid out just 8.4% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 108% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Chuang's China Investments does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Chuang's China Investments paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Chuang's China Investments's ability to maintain its dividend.

Click here to see how much of its profit Chuang's China Investments paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Chuang's China Investments's earnings per share have been growing at 10% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chuang's China Investments has delivered 4.6% dividend growth per year on average over the past nine years. Earnings per share have been growing much quicker than dividends, potentially because Chuang's China Investments is keeping back more of its profits to grow the business.

To Sum It Up

Is Chuang's China Investments worth buying for its dividend? We like that Chuang's China Investments has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. All things considered, we are not particularly enthused about Chuang's China Investments from a dividend perspective.

On that note, you'll want to research what risks Chuang's China Investments is facing. For instance, we've identified 4 warning signs for Chuang's China Investments (1 is significant) you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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