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Investors who want to cash in on Microware Group Limited’s (HKG:1985) upcoming dividend of HK$0.04 per share have only 4 days left to buy the shares before its ex-dividend date, 11 December 2018, in time for dividends payable on the 28 December 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Microware Group’s latest financial data to analyse its dividend characteristics.
View our latest analysis for Microware Group
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Does it pay an annual yield higher than 75% of dividend payers?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has the amount of dividend per share grown over the past?
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Is is able to pay the current rate of dividends from its earnings?
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Will the company be able to keep paying dividend based on the future earnings growth?
How well does Microware Group fit our criteria?
The company currently pays out 108% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Microware Group as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Relative to peers, Microware Group generates a yield of 7.2%, which is high for IT stocks.
Next Steps:
After digging a little deeper into Microware Group’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant factors you should further research: