Read This Before Considering SmarTone Telecommunications Holdings Limited (HKG:315) For Its Upcoming HK$0.175 Dividend
SmarTone Telecommunications Holdings Limited (HKG:315) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase SmarTone Telecommunications Holdings' shares before the 3rd of November to receive the dividend, which will be paid on the 16th of November.
The company's next dividend payment will be HK$0.175 per share. Last year, in total, the company distributed HK$0.32 to shareholders. Last year's total dividend payments show that SmarTone Telecommunications Holdings has a trailing yield of 6.7% on the current share price of HK$4.81. 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! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. SmarTone Telecommunications Holdings paid out 67% of its earnings to investors last year, a normal payout level for most businesses. 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. The good news is it paid out just 25% of its free cash flow in the last year.
It's positive to see that SmarTone Telecommunications 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.
Check out our latest analysis for SmarTone Telecommunications Holdings
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. 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 SmarTone Telecommunications Holdings, with earnings per share up 3.6% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SmarTone Telecommunications Holdings has seen its dividend decline 6.1% per annum on average over the past 10 years, which is not great to see. SmarTone Telecommunications 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.
To Sum It Up
Has SmarTone Telecommunications Holdings got what it takes to maintain its dividend payments? Earnings per share growth has been modest and SmarTone Telecommunications Holdings paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
While it's tempting to invest in SmarTone Telecommunications Holdings for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for SmarTone Telecommunications Holdings that we recommend you consider before investing in the business.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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