Xiabuxiabu Catering Management (China) Holdings Co., Ltd.'s (HKG:520) Could Be A Buy For Its Upcoming Dividend
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 Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) is about to go ex-dividend in just 3 days. This means that investors who purchase shares on or after the 2nd of June will not receive the dividend, which will be paid on the 18th of June.
Xiabuxiabu Catering Management (China) Holdings's next dividend payment will be HK$0.046 per share, on the back of last year when the company paid a total of HK$0.11 to shareholders. Based on the last year's worth of payments, Xiabuxiabu Catering Management (China) Holdings stock has a trailing yield of around 1.4% on the current share price of HK$8.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Xiabuxiabu Catering Management (China) 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. Xiabuxiabu Catering Management (China) Holdings paid out a comfortable 40% of its profit last year. 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. Over the last year it paid out 57% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Xiabuxiabu Catering Management (China) Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Xiabuxiabu Catering Management (China) Holdings, with earnings per share up 9.9% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last five years, Xiabuxiabu Catering Management (China) Holdings has lifted its dividend by approximately 2.8% 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.
To Sum It Up
Should investors buy Xiabuxiabu Catering Management (China) Holdings for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that Xiabuxiabu Catering Management (China) Holdings is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. All things considered, we are not particularly enthused about Xiabuxiabu Catering Management (China) Holdings from a dividend perspective.
On that note, you'll want to research what risks Xiabuxiabu Catering Management (China) Holdings is facing. Case in point: We've spotted 2 warning signs for Xiabuxiabu Catering Management (China) Holdings you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.
