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 Ming Fai International Holdings Limited (HKG:3828) is about to go ex-dividend in just 3 days. You can purchase shares before the 29th of May in order to receive the dividend, which the company will pay on the 12th of June.
Ming Fai International Holdings's upcoming dividend is HK$0.03 a share, following on from the last 12 months, when the company distributed a total of HK$0.045 per share to shareholders. Based on the last year's worth of payments, Ming Fai International Holdings has a trailing yield of 6.0% on the current stock price of HK$0.75. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Ming Fai International Holdings paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Ming Fai International Holdings generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Ming Fai International Holdings, with earnings per share up 8.3% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ming Fai International Holdings's dividend payments per share have declined at 2.8% per year on average over the past ten years, which is uninspiring. Ming Fai International Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
From a dividend perspective, should investors buy or avoid Ming Fai International Holdings? Earnings per share growth has been growing somewhat, and Ming Fai International Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Ming Fai International Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. Ming Fai International Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Ming Fai International Holdings is facing. In terms of investment risks, we've identified 2 warning signs with Ming Fai International Holdings and understanding them should be part of your investment process.
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.