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There's A Lot To Like About Infinity Development Holdings Company Limited's (HKG:640) Upcoming HK$0.052 Dividend

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 Infinity Development Holdings Company Limited (HKG:640) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 25th of February, you won't be eligible to receive this dividend, when it is paid on the 16th of March.

Infinity Development Holdings's upcoming dividend is HK$0.052 a share, following on from the last 12 months, when the company distributed a total of HK$0.052 per share to shareholders. Based on the last year's worth of payments, Infinity Development Holdings stock has a trailing yield of around 5.8% on the current share price of HK$0.89. 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 Infinity Development Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Infinity Development Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Infinity Development Holdings paid out a comfortable 48% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.

It's positive to see that Infinity Development Holdings'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 Infinity Development Holdings paid out over the last 12 months.

SEHK:640 Historical Dividend Yield, February 20th 2020
SEHK:640 Historical Dividend Yield, February 20th 2020

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Infinity Development Holdings earnings per share are up 9.8% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, nine years ago, Infinity Development Holdings has lifted its dividend by approximately 13% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Infinity Development Holdings? Earnings per share growth has been growing somewhat, and Infinity Development Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Infinity Development Holdings is halfway there. There's a lot to like about Infinity Development Holdings, and we would prioritise taking a closer look at it.

Curious about whether Infinity Development Holdings has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.