It Might Not Be A Great Idea To Buy Wharf Real Estate Investment Company Limited (HKG:1997) For Its Next Dividend
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 Wharf Real Estate Investment Company Limited (HKG:1997) is about to go ex-dividend in just four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Wharf Real Estate Investment's shares before the 25th of August in order to be eligible for the dividend, which will be paid on the 10th of September.
The company's next dividend payment will be HK$0.94 per share, on the back of last year when the company paid a total of HK$1.88 to shareholders. Calculating the last year's worth of payments shows that Wharf Real Estate Investment has a trailing yield of 5.7% on the current share price of HK$32.84. 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 Wharf Real Estate Investment can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Wharf Real Estate Investment's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 57% of its free cash flow as dividends, within the usual range for most companies.
Check out our latest analysis for Wharf Real Estate Investment
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Wharf Real Estate Investment was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Wharf Real Estate Investment has delivered an average of 8.9% per year annual increase in its dividend, based on the past eight years of dividend payments.
We update our analysis on Wharf Real Estate Investment every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Wharf Real Estate Investment worth buying for its dividend? It's hard to get used to Wharf Real Estate Investment paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
So if you're still interested in Wharf Real Estate Investment despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Wharf Real Estate Investment has 1 warning sign we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.