VSTECS Holdings (HKG:856) Could Be A Buy For Its Upcoming Dividend

VSTECS Holdings Limited (HKG:856) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase VSTECS Holdings' shares on or after the 29th of May, you won't be eligible to receive the dividend, when it is paid on the 30th of June.

The company's next dividend payment will be HK$0.257 per share, on the back of last year when the company paid a total of HK$0.26 to shareholders. Based on the last year's worth of payments, VSTECS Holdings stock has a trailing yield of around 3.9% on the current share price of HK$6.60. 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.

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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. VSTECS Holdings paid out a comfortable 34% of its profit last year. A useful secondary check can be to evaluate whether VSTECS Holdings generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that VSTECS 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.

View our latest analysis for VSTECS Holdings

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

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. This is why it's a relief to see VSTECS Holdings earnings per share are up 5.2% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, VSTECS Holdings has lifted its dividend by approximately 8.1% 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.

To Sum It Up

Has VSTECS Holdings got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and VSTECS 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 VSTECS Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about VSTECS Holdings, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks VSTECS Holdings is facing. We've identified 3 warning signs with VSTECS Holdings (at least 1 which makes us a bit uncomfortable), and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.