It Might Not Be A Great Idea To Buy Soundwill Holdings Limited (HKG:878) For Its Next Dividend

By
Simply Wall St
Published
May 26, 2021
SEHK:878
Source: Shutterstock

Soundwill Holdings Limited (HKG:878) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Soundwill Holdings investors that purchase the stock on or after the 31st of May will not receive the dividend, which will be paid on the 17th of June.

The company's upcoming dividend is HK$0.20 a share, following on from the last 12 months, when the company distributed a total of HK$0.20 per share to shareholders. Based on the last year's worth of payments, Soundwill Holdings has a trailing yield of 2.3% on the current stock price of HK$8.83. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Soundwill Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Soundwill Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Soundwill Holdings paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Soundwill Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 21% of its free cash flow as dividends last year, which is conservatively low.

Click here to see how much of its profit Soundwill Holdings paid out over the last 12 months.

historic-dividend
SEHK:878 Historic Dividend May 26th 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Soundwill Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Soundwill Holdings has delivered 7.2% dividend growth per year on average over the past 10 years.

We update our analysis on Soundwill Holdings every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Soundwill Holdings? It's hard to get used to Soundwill Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Soundwill Holdings and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 2 warning signs for Soundwill Holdings (1 is a bit concerning) you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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