S.A.S. Dragon Holdings Limited (HKG:1184) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 27th of September in order to be eligible for this dividend, which will be paid on the 16th of October.
S.A.S. Dragon Holdings's next dividend payment will be HK$0.04 per share. Last year, in total, the company distributed HK$0.2 to shareholders. Based on the last year's worth of payments, S.A.S. Dragon Holdings stock has a trailing yield of around 8.5% on the current share price of HK$2.35. 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 investigate whether S.A.S. Dragon Holdings can afford its dividend, and if the dividend could grow.
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 S.A.S. Dragon Holdings's payout ratio is modest, at just 46% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 11% 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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see S.A.S. Dragon Holdings earnings per share are up 5.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, S.A.S. Dragon Holdings has lifted its dividend by approximately 30% 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 S.A.S. Dragon Holdings got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and S.A.S. Dragon Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and S.A.S. Dragon Holdings is halfway there. Overall we think this is an attractive combination and worthy of further research.
Want to learn more about S.A.S. Dragon Holdings's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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