It looks like Ajisen (China) Holdings Limited (HKG:538) is about to go ex-dividend in the next 4 days. You can purchase shares before the 26th of May in order to receive the dividend, which the company will pay on the 30th of September.
Ajisen (China) Holdings's next dividend payment will be HK$0.053 per share, on the back of last year when the company paid a total of HK$0.069 to shareholders. Calculating the last year's worth of payments shows that Ajisen (China) Holdings has a trailing yield of 4.9% on the current share price of HK$1.55. 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 Ajisen (China) Holdings can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Ajisen (China) Holdings's payout ratio is modest, at just 48% 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. Fortunately, it paid out only 39% of its free cash flow in the past year.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Ajisen (China) Holdings's earnings per share have dropped 6.6% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ajisen (China) Holdings's dividend payments per share have declined at 5.9% per year on average over the past ten years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Should investors buy Ajisen (China) Holdings for the upcoming dividend? Ajisen (China) 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. In summary, while it has some positive characteristics, we're not inclined to race out and buy Ajisen (China) Holdings today.
So while Ajisen (China) 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 5 warning signs with Ajisen (China) 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 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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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.