Why It Might Not Make Sense To Buy SmarTone Telecommunications Holdings Limited (HKG:315) For Its Upcoming Dividend
It looks like SmarTone Telecommunications Holdings Limited (HKG:315) is about to go ex-dividend in the next 3 days. You can purchase shares before the 28th of February in order to receive the dividend, which the company will pay on the 9th of April.
SmarTone Telecommunications Holdings's next dividend payment will be HK$0.14 per share, and in the last 12 months, the company paid a total of HK$0.39 per share. Based on the last year's worth of payments, SmarTone Telecommunications Holdings has a trailing yield of 6.7% on the current stock price of HK$5.8. 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.
See our latest analysis for SmarTone Telecommunications Holdings
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 more than half (71%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about SmarTone Telecommunications Holdings's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, SmarTone Telecommunications Holdings has lifted its dividend by approximately 26% a year on average.
Final Takeaway
From a dividend perspective, should investors buy or avoid SmarTone Telecommunications Holdings? SmarTone Telecommunications Holdings has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Wondering what the future holds for SmarTone Telecommunications Holdings? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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