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 KPa-BM Holdings Limited ( HKG:2663 ) is about to go ex-dividend in just 3 days. Investors can purchase shares before the 29th of August in order to be eligible for this dividend, which will be paid on the 20th of September.
KPa-BM Holdings's upcoming dividend is HK$0.016 a share, following on from the last 12 months, when the company distributed a total of HK$0.016 per share to shareholders. Calculating the last year's worth of payments shows that KPa-BM Holdings has a trailing yield of 6.4% on the current share price of HK$0.25. 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 check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see KPa-BM Holdings paying out a modest 34% of its earnings. A useful secondary check can be to evaluate whether KPa-BM Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past year.
It's positive to see that KPa-BM 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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see KPa-BM Holdings's earnings per share have risen 17% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 3 years, KPa-BM Holdings has lifted its dividend by approximately 2.2% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
From a dividend perspective, should investors buy or avoid KPa-BM Holdings? KPa-BM Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about KPa-BM Holdings, and we would prioritise taking a closer look at it.
Curious about whether KPa-BM Holdings has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.