Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see Financial Street Property Co., Limited (HKG:1502) is set to trade ex-dividend in the next 2 days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is an important date to know because any purchase of shares made on or after this date may mean late settlement which does not appear on the record date. This means you will need to buy the shares of Financial Street Property by June 13 to receive the dividend, which will be paid on August 8.
The company’s next dividend payment will be CN¥0.22 per share. Last year, in total, the company distributed CN¥0.22 to shareholders. Calculating the value of last year’s payouts shows that Financial Street Property has an 8.8% yield on the current share price of HK$2.95. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! We need to see if the dividend is covered by earnings and if it increases.
Check out our latest analysis for Financial Street Property
Dividends are usually paid out of company profits. If a company pays out more dividends than it earns in profits, then the dividend could be unsustainable. Financial Street Property pays an acceptable 60% of its profits, a common payout level for most companies. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. Over the past year, it has paid out 60% of its free cash flow as dividends, within the usual range for most companies.
It is positive to see that the Financial Street Property dividend is covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests greater safety margin before the dividend is reduced.
Click here to see how much of its profits Financial Street Property has paid out over the past 12 months.
Have earnings and dividends increased?
Companies that aren’t growing profits can still be valuable, but it’s even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall enough, the company could be forced to cut its dividend. With that in mind, we’re not thrilled to see that Financial Street Property’s earnings per share have effectively held steady over the past five years. It’s better than seeing them fall, sure, but over the long term, all the best dividend-paying stocks have the potential to significantly increase their earnings per share.
We also note that Financial Street Property has issued a significant number of new shares over the past year. Trying to increase the dividend while issuing large amounts of new stock reminds us of the ancient Greek story of Sisyphus – perpetually pushing a rock upwards.
Given that Financial Street Property has only been paying a dividend for a year, there aren’t many past stories to draw from.
From a dividend perspective, should investors buy or avoid Financial Street Property? Although earnings per share are stable, at least Financial Street Property has not pledged to pay an unsustainable dividend, with its earnings and cash payout ratios being within reasonable limits. Overall, it doesn’t seem like the most suitable dividend-paying stock for a long-term investor.
With that in mind, if you don’t mind Financial Street Property’s low dividend characteristics, it’s worth keeping in mind the risks associated with this business. Our analysis shows 1 warning sign for Financial Street Property and you should be aware of this before buying stocks.
As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.