Hong Ho Precision TextileLtd (TWSE:1446) Could Be A Buy 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 Hong Ho Precision Textile Co.,Ltd. (TWSE:1446) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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 Hong Ho Precision TextileLtd's shares before the 16th of July in order to be eligible for the dividend, which will be paid on the 15th of August.

The company's next dividend payment will be NT$0.70 per share, on the back of last year when the company paid a total of NT$0.70 to shareholders. Last year's total dividend payments show that Hong Ho Precision TextileLtd has a trailing yield of 1.3% on the current share price of NT$52.90. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hong Ho Precision TextileLtd

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. Hong Ho Precision TextileLtd has a low and conservative payout ratio of just 23% of its income after tax. A useful secondary check can be to evaluate whether Hong Ho Precision TextileLtd generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 2.1% of its cash flow last year.

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 how much of its profit Hong Ho Precision TextileLtd paid out over the last 12 months.

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. That's why it's comforting to see Hong Ho Precision TextileLtd's earnings have been skyrocketing, up 45% per annum for the past five years. Hong Ho Precision TextileLtd looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Hong Ho Precision TextileLtd has increased its dividend at approximately 8.8% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Hong Ho Precision TextileLtd got what it takes to maintain its dividend payments? Hong Ho Precision TextileLtd has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Hong Ho Precision TextileLtd has 2 warning signs we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com