Sa Sa International Holdings (HKG:178) Could Be A Buy For Its Upcoming Dividend
Sa Sa International Holdings Limited (HKG:178) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase Sa Sa International Holdings' shares before the 31st of August to receive the dividend, which will be paid on the 16th of September.
The company's upcoming dividend is HK$0.053 a share, following on from the last 12 months, when the company distributed a total of HK$0.045 per share to shareholders. Looking at the last 12 months of distributions, Sa Sa International Holdings has a trailing yield of approximately 4.7% on its current stock price of HK$0.965. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sa Sa International Holdings has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sa Sa International Holdings paid out 70% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Check out our latest analysis for Sa Sa International Holdings
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. It's encouraging to see Sa Sa International Holdings has grown its earnings rapidly, up 58% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Sa Sa International Holdings could have strong prospects for future increases to the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sa Sa International Holdings has seen its dividend decline 15% per annum on average over the past 10 years, which is not great to see. Sa Sa International Holdings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Has Sa Sa International Holdings got what it takes to maintain its dividend payments? We like Sa Sa International Holdings's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Sa Sa International Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Sa Sa International Holdings is facing. To help with this, we've discovered 1 warning sign for Sa Sa International Holdings that you should be aware of before investing in their shares.
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.