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It looks like China New Higher Education Group Limited (HKG:2001) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 13th of September, you won't be eligible to receive this dividend, when it is paid on the 2nd of October.
China New Higher Education Group's upcoming dividend is CN¥0.04 a share, following on from the last 12 months, when the company distributed a total of CN¥0.046 per share to shareholders. Last year's total dividend payments show that China New Higher Education Group has a trailing yield of 1.5% on the current share price of HK$3.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for China New Higher Education Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. China New Higher Education Group paid out a comfortable 27% of its profit last year. 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. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.
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. With that in mind, it's good to see earnings have grown 5.8% on last year. Decent historical earnings per share growth suggests China New Higher Education Group has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.