It looks like China Merchants Port Holdings Company Limited (HKG:144) is about to go ex-dividend in the next 4 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 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. In other words, investors can purchase China Merchants Port Holdings' shares before the 8th of June in order to be eligible for the dividend, which will be paid on the 16th of July.
The company's next dividend payment will be HK$0.51 per share, on the back of last year when the company paid a total of HK$0.69 to shareholders. Based on the last year's worth of payments, China Merchants Port Holdings has a trailing yield of 5.5% on the current stock price of HK$12.66. 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.
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. Fortunately China Merchants Port Holdings's payout ratio is modest, at just 47% of profit. 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 18% 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.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 explains why we're not overly excited about China Merchants Port Holdings's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
China Merchants Port Holdings also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. China Merchants Port Holdings has seen its dividend decline 3.9% per annum on average over the past 10 years, which is not great to see.
The Bottom Line
Should investors buy China Merchants Port Holdings for the upcoming dividend? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. To summarise, China Merchants Port Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.
On that note, you'll want to research what risks China Merchants Port Holdings is facing. For example - China Merchants Port Holdings has 4 warning signs we think you should be aware of.
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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