VSTECS Holdings Limited (HKG:856) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase VSTECS Holdings' shares before the 1st of June in order to be eligible for the dividend, which will be paid on the 7th of July.

The company's next dividend payment will be HK$0.27 per share, on the back of last year when the company paid a total of HK$0.27 to shareholders. Based on the last year's worth of payments, VSTECS Holdings stock has a trailing yield of around 4.3% on the current share price of HK$6.22. If you buy this business for its dividend, you should have an idea of whether VSTECS Holdings's dividend is reliable and sustainable. So we need to investigate whether VSTECS Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for VSTECS Holdings

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 VSTECS Holdings's payout ratio is modest, at just 29% of profit. 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. Over the last year it paid out 50% of its free cash flow as dividends, within the usual range for most companies.

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 VSTECS 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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see VSTECS Holdings's earnings per share have risen 19% per annum over the last five years. VSTECS Holdings has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. VSTECS Holdings has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

From a dividend perspective, should investors buy or avoid VSTECS Holdings? Earnings per share have grown at a nice rate in recent times and over the last year, VSTECS Holdings paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about VSTECS Holdings, and we would prioritise taking a closer look at it.

So while VSTECS Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for VSTECS Holdings and you should be aware of it before buying any shares.

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.