Stock Analysis

Why You Might Be Interested In Comba Telecom Systems Holdings Limited (HKG:2342) For Its Upcoming Dividend

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SEHK:2342

Comba Telecom Systems Holdings Limited (HKG:2342) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Comba Telecom Systems Holdings' shares before the 7th of September in order to be eligible for the dividend, which will be paid on the 19th of September.

The company's upcoming dividend is HK$0.012 a share, following on from the last 12 months, when the company distributed a total of HK$0.024 per share to shareholders. Based on the last year's worth of payments, Comba Telecom Systems Holdings has a trailing yield of 2.2% on the current stock price of HK$1.08. 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 investigate whether Comba Telecom Systems Holdings can afford its dividend, and if the dividend could grow.

See our latest analysis for Comba Telecom Systems Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Comba Telecom Systems 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. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

SEHK:2342 Historic Dividend September 3rd 2023

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 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 Comba Telecom Systems Holdings's earnings have been skyrocketing, up 47% 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. Since the start of our data, nine years ago, Comba Telecom Systems Holdings has lifted its dividend by approximately 5.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Comba Telecom Systems Holdings is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid Comba Telecom Systems Holdings? It's great that Comba Telecom Systems Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

Wondering what the future holds for Comba Telecom Systems Holdings? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.

About SEHK:2342

Comba Telecom Systems Holdings

An investment holding company, research, develops, manufactures, and sells wireless telecommunications network system equipment and related engineering services in Mainland China, rest of Asia Pacific, the Americas, the European Union, the Middle East, and internationally.