Hong Kong Johnson Holdings Co., Ltd. (HKG:1955) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Hong Kong Johnson Holdings' shares on or after the 14th of September will not receive the dividend, which will be paid on the 10th of October.
The company's upcoming dividend is HK$0.05 a share, following on from the last 12 months, when the company distributed a total of HK$0.05 per share to shareholders. Calculating the last year's worth of payments shows that Hong Kong Johnson Holdings has a trailing yield of 5.1% on the current share price of HK$0.98. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Hong Kong Johnson 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. Hong Kong Johnson Holdings is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 distributed 40% of its free cash flow as dividends, a comfortable payout level 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 Hong Kong Johnson Holdings paid out over the last 12 months.SEHK:1955 Historic Dividend September 9th 2022
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Hong Kong Johnson Holdings has grown its earnings rapidly, up 65% a year for the past three years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Given that Hong Kong Johnson Holdings has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Should investors buy Hong Kong Johnson Holdings for the upcoming dividend? Hong Kong Johnson Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks Hong Kong Johnson Holdings is facing. Case in point: We've spotted 3 warning signs for Hong Kong Johnson Holdings 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.