China MeiDong Auto Holdings Limited (HKG:1268) Looks Interesting, And It's About To Pay A Dividend

By
Simply Wall St
Published
September 02, 2021
SEHK:1268
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see China MeiDong Auto Holdings Limited (HKG:1268) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase China MeiDong Auto Holdings' shares before the 7th of September in order to be eligible for the dividend, which will be paid on the 28th of October.

The company's next dividend payment will be CN¥0.13 per share. Last year, in total, the company distributed CN¥0.39 to shareholders. Calculating the last year's worth of payments shows that China MeiDong Auto Holdings has a trailing yield of 1.1% on the current share price of HK$41.1. 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! As a result, readers should always check whether China MeiDong Auto Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for China MeiDong Auto 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. That's why it's good to see China MeiDong Auto Holdings paying out a modest 47% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that China MeiDong Auto 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.

historic-dividend
SEHK:1268 Historic Dividend September 2nd 2021

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see China MeiDong Auto Holdings's earnings have been skyrocketing, up 52% 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. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. China MeiDong Auto Holdings has delivered an average of 43% per year annual increase in its dividend, based on the past seven years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Is China MeiDong Auto Holdings an attractive dividend stock, or better left on the shelf? We love that China MeiDong Auto Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about China MeiDong Auto Holdings, and we would prioritise taking a closer look at it.

Wondering what the future holds for China MeiDong Auto Holdings? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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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