Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Tai Ping Carpets International Limited (HKG:146) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. Meaning, you will need to purchase Tai Ping Carpets International’s shares before the 13th of December to receive the dividend, which will be paid on the 30th of December.
The company’s next dividend payment will be HK$0.06 per share, on the back of last year when the company paid a total of HK$0.06 to shareholders. Based on the last year’s worth of payments, Tai Ping Carpets International has a trailing yield of 8.6% on the current stock price of HK$0.7. 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! So we need to investigate whether Tai Ping Carpets International can afford its dividend, and if the dividend could grow.
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If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Tai Ping Carpets International paid out 50% of its earnings to investors last year, a normal payout level for most businesses. 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. The good news is it paid out just 8.8% of its free cash flow in the last year.
It’s positive to see that Tai Ping Carpets International’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Tai Ping Carpets International paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see Tai Ping Carpets International’s earnings have been skyrocketing, up 66% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Tai Ping Carpets International’s dividend payments per share have declined at 4.0% per year on average over the past 10 years, which is uninspiring. It’s unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We’d hope it’s because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Should investors buy Tai Ping Carpets International for the upcoming dividend? Tai Ping Carpets International’s growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Tai Ping Carpets International has an appealing dividend, it’s worth knowing the risks involved with this stock. In terms of investment risks, we’ve identified 2 warning signs with Tai Ping Carpets International and understanding them should be part of your investment process.
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.