Readers wishing to buy Telecom Digital Holdings Limited (HKG: 6033) for its dividend will have to act shortly, as the stock is about to trade ex-dividend. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. Thus, you can buy shares of Telecom Digital Holdings before October 11 in order to receive the dividend that the company will pay on October 22.
The company’s next dividend payment will be HK $ 0.06 per share. Last year, in total, the company distributed HK $ 0.26 to shareholders. Based on the value of last year’s payouts, Telecom Digital Holdings has a 7.9% return on the current share price of HK $ 3.31. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our goose that lays the golden eggs! So we need to determine if Telecom Digital Holdings can afford its dividend and if the dividend could increase.
Check out our latest analysis for Telecom Digital Holdings
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. It paid out 78% of its profits as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a downturn in activity. We would be concerned about the risk of falling earnings. Yet cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. Dividends consumed 69% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.
It is positive to see that Telecom Digital Holdings’ dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a higher. margin of safety before the dividend is cut.
Click here to see how much of its profits Telecom Digital Holdings has paid in the past 12 months.
Have profits and dividends increased?
Companies with consistently rising earnings per share usually make the best dividend-paying stocks because they generally find it easier to raise dividends per share. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. That’s why it’s a relief to see that Telecom Digital Holdings’ earnings per share have grown 8.3% per year over the past five years. Decent historic growth in earnings per share suggests that Telecom Digital Holdings has indeed increased shareholder value. However, he now pays more than half of his profits as dividends. If management further increases the payout ratio, we will take this as an unspoken signal that the company’s growth prospects are slowing.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Telecom Digital Holdings has generated an average annual increase of 31% per year in its dividend, based on the last seven years of dividend payments. We are happy to see dividends increasing alongside earnings over multiple years, which may be a sign that the company intends to share the growth with its shareholders.
Should investors buy Telecom Digital Holdings for the next dividend? Earnings per share grew modestly, and Telecom Digital Holdings paid just over half of its earnings and free cash flow last year. Overall, we are not extremely bearish on the stock, but there are probably better dividend investments.
While you’re not overly concerned with Telecom Digital Holdings’ ability to pay dividends, you should still be aware of some of the other risks that this business faces. Our analysis shows 2 warning signs for Telecom Digital Holdings and you must know them before you buy stocks.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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