Advertisement

Why Dah Sing Financial Holdings Limited (HKG:440) Is A Top Dividend Stock

Is Dah Sing Financial Holdings Limited (HKG:440) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

A high yield and a long history of paying dividends is an appealing combination for Dah Sing Financial Holdings. It would not be a surprise to discover that many investors buy it for the dividends. The company also bought back stock during the year, equivalent to approximately 8.5% of the company's market capitalisation at the time. Some simple analysis can reduce the risk of holding Dah Sing Financial Holdings for its dividend, and we'll focus on the most important aspects below.

Click the interactive chart for our full dividend analysis

SEHK:440 Historical Dividend Yield, March 23rd 2020
SEHK:440 Historical Dividend Yield, March 23rd 2020

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Dah Sing Financial Holdings paid out 25% of its profit as dividends, over the trailing twelve month period. We'd say its dividends are thoroughly covered by earnings.

We update our data on Dah Sing Financial Holdings every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Dah Sing Financial Holdings's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past ten-year period, the first annual payment was HK$0.40 in 2010, compared to HK$1.48 last year. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time.

It's rare to find a company that has grown its dividends rapidly over ten years and not had any notable cuts, but Dah Sing Financial Holdings has done it, which we really like.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Dah Sing Financial Holdings has grown its earnings per share at 4.4% per annum over the past five years. As we saw above, earnings per share growth has not been strong. On the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Conclusion

To summarise, shareholders should always check that Dah Sing Financial Holdings's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're glad to see Dah Sing Financial Holdings has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings growth has been limited, but we like that the dividend payments have been fairly consistent. Dah Sing Financial Holdings has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Dah Sing Financial Holdings (of which 2 are significant!) you should know about.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.