1861) For Its Upcoming Dividend
Precious Dragon Technology Holdings Limited (HKG:1861) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 21st of May will not receive the dividend, which will be paid on the 10th of June.
Precious Dragon Technology Holdings’s upcoming dividend is HK$0.025 a share, following on from the last 12 months, when the company distributed a total of HK$0.049 per share to shareholders. Looking at the last 12 months of distributions, Precious Dragon Technology Holdings has a trailing yield of approximately 3.8% on its current stock price of HK$1.29. 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 investigate whether Precious Dragon Technology Holdings can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Precious Dragon Technology Holdings
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Precious Dragon Technology Holdings is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Precious Dragon Technology Holdings paid out more free cash flow than it generated – 148%, to be precise – last year, which we think is concerningly high. We’re curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Precious Dragon Technology Holdings does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Precious Dragon Technology Holdings paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Precious Dragon Technology Holdings’s ability to maintain its dividend.
Click here to see how much of its profit Precious Dragon Technology Holdings paid out over the last 12 months.
SEHK:1861 Historical Dividend Yield May 17th 2020
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. From this viewpoint, it’s unfortunate that earnings per share have declined 10% over the last year.
Precious Dragon Technology Holdings also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill.
Given that Precious Dragon Technology Holdings has only been paying a dividend for a year, there’s not much of a past history to draw insight from.
Final Takeaway
Is Precious Dragon Technology Holdings worth buying for its dividend? It’s disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Precious Dragon Technology Holdings is paying out less than half its income as dividends. However, it’s also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Precious Dragon Technology Holdings. For example, we’ve found 4 warning signs for Precious Dragon Technology Holdings (2 are concerning!) that deserve your attention before investing in the shares.
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.
If you spot an error that warrants correction, please contact the editor at [email protected]. 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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