In This Article:
It looks like HSBC Holdings plc (LON:HSBA) is about to go ex-dividend in the next four days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase HSBC Holdings' shares on or after the 6th of March will not receive the dividend, which will be paid on the 25th of April.
The company's next dividend payment will be US$0.36 per share, on the back of last year when the company paid a total of US$0.66 to shareholders. Based on the last year's worth of payments, HSBC Holdings has a trailing yield of 5.6% on the current stock price of UK£9.336. 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! We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for HSBC Holdings
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. HSBC Holdings paid out 53% of its earnings to investors last year, a normal payout level for most businesses.
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 the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see HSBC Holdings has grown its earnings rapidly, up 34% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. HSBC Holdings has delivered 2.9% dividend growth per year on average over the past nine years. Earnings per share have been growing much quicker than dividends, potentially because HSBC Holdings is keeping back more of its profits to grow the business.
To Sum It Up
From a dividend perspective, should investors buy or avoid HSBC Holdings? HSBC Holdings has an acceptable payout ratio and its earnings per share have been improving at a decent rate. We think this is a pretty attractive combination, and would be interested in investigating HSBC Holdings more closely.