It looks like Hong Kong Johnson Holdings Co., Ltd. (HKG:1955) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Meaning, you will need to purchase Hong Kong Johnson Holdings' shares before the 13th of September to receive the dividend, which will be paid on the 10th of October.
The company's upcoming dividend is HK$0.012 a share, following on from the last 12 months, when the company distributed a total of HK$0.012 per share to shareholders. Last year's total dividend payments show that Hong Kong Johnson Holdings has a trailing yield of 3.0% on the current share price of HK$0.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Hong Kong Johnson Holdings
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Hong Kong Johnson Holdings is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Hong Kong Johnson Holdings generated enough free cash flow to afford its dividend. It distributed 29% 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.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Hong Kong Johnson Holdings's earnings are down 2.4% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hong Kong Johnson Holdings has seen its dividend decline 60% per annum on average over the past two years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
To Sum It Up
Is Hong Kong Johnson Holdings worth buying for its dividend? Hong Kong Johnson Holdings has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
While it's tempting to invest in Hong Kong Johnson Holdings for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 4 warning signs for Hong Kong Johnson Holdings you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.