Is It Worth Considering SmarTone Telecommunications Holdings Limited (HKG:315) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see SmarTone Telecommunications Holdings Limited (HKG:315) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase SmarTone Telecommunications Holdings' shares on or after the 10th of November will not receive the dividend, which will be paid on the 21st of November.

The company's next dividend payment will be HK$0.175 per share, on the back of last year when the company paid a total of HK$0.32 to shareholders. Looking at the last 12 months of distributions, SmarTone Telecommunications Holdings has a trailing yield of approximately 6.6% on its current stock price of HK$4.88. 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 SmarTone Telecommunications Holdings has been able to grow its dividends, or if the dividend might be cut.

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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. SmarTone Telecommunications Holdings is paying out an acceptable 74% of its profit, a common payout level among most companies. 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 distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that SmarTone Telecommunications 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.

See our latest analysis for SmarTone Telecommunications Holdings

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see SmarTone Telecommunications Holdings earnings per share are up 5.2% per annum over the last five years. Decent historical earnings per share growth suggests SmarTone Telecommunications Holdings has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. SmarTone Telecommunications Holdings has seen its dividend decline 6.1% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

From a dividend perspective, should investors buy or avoid SmarTone Telecommunications Holdings? While earnings per share growth has been modest, SmarTone Telecommunications Holdings's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. To summarise, SmarTone Telecommunications Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in SmarTone Telecommunications Holdings for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with SmarTone Telecommunications Holdings and understanding them should be part of your investment process.

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.