Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Pico Far East Holdings Limited (HKG:752) is about to go ex-dividend in just four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Pico Far East Holdings' shares before the 20th of March in order to be eligible for the dividend, which will be paid on the 10th of April.
The company's next dividend payment will be HK$0.07 per share, and in the last 12 months, the company paid a total of HK$0.09 per share. Calculating the last year's worth of payments shows that Pico Far East Holdings has a trailing yield of 5.3% on the current share price of HK$1.71. If you buy this business for its dividend, you should have an idea of whether Pico Far East Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Fortunately Pico Far East Holdings's payout ratio is modest, at just 49% of profit. A useful secondary check can be to evaluate whether Pico Far East Holdings generated enough free cash flow to afford its dividend. It paid out 24% 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.
Click here to see how much of its profit Pico Far East Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Pico Far East Holdings's earnings are down 3.5% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Pico Far East Holdings has seen its dividend decline 1.0% per annum on average over the past 10 years, which is not great to see.
To Sum It Up
Has Pico Far East Holdings got what it takes to maintain its dividend payments? Pico Far East 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. All things considered, we are not particularly enthused about Pico Far East Holdings from a dividend perspective.
So while Pico Far East Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 2 warning signs with Pico Far East Holdings (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.
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.