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 Great Eagle Holdings Limited (HKG:41) is about to go ex-dividend in just 2 days. Investors can purchase shares before the 26th of September in order to be eligible for this dividend, which will be paid on the 17th of October.
Great Eagle Holdings's next dividend payment will be HK$0.3 per share, on the back of last year when the company paid a total of HK$0.8 to shareholders. Calculating the last year's worth of payments shows that Great Eagle Holdings has a trailing yield of 3.1% on the current share price of HK$26.65. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Great Eagle Holdings
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Great Eagle Holdings has a low and conservative payout ratio of just 13% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 13% 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Great Eagle Holdings's earnings per share have been growing at 11% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Great Eagle Holdings has increased its dividend at approximately 4.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Great Eagle Holdings is keeping back more of its profits to grow the business.