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Readers hoping to buy Bank of Tianjin Co., Ltd. (HKG:1578) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 14th of May, you won't be eligible to receive this dividend, when it is paid on the 30th of June.
Bank of Tianjin's next dividend payment will be HK$0.18 per share, on the back of last year when the company paid a total of HK$0.18 to shareholders. Based on the last year's worth of payments, Bank of Tianjin stock has a trailing yield of around 5.9% on the current share price of HK$3.36. If you buy this business for its dividend, you should have an idea of whether Bank of Tianjin's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Bank of Tianjin
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bank of Tianjin paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see how much of its profit Bank of Tianjin paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Bank of Tianjin's earnings per share have been shrinking at 3.2% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Bank of Tianjin dividends are largely the same as they were four years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
The Bottom Line
Should investors buy Bank of Tianjin for the upcoming dividend? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.