Why You Might Be Interested In China Hanking Holdings Limited (HKG:3788) For Its Upcoming Dividend

China Hanking Holdings Limited (HKG:3788) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 1st of June to receive the dividend, which will be paid on the 15th of June.

The upcoming dividend for China Hanking Holdings will put a total of HK$0.08 per share in shareholders' pockets, up from last year's total dividends of HK$0.073. 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 China Hanking Holdings can afford its dividend, and if the dividend could grow.

See our latest analysis for China Hanking 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. Fortunately China Hanking Holdings's payout ratio is modest, at just 39% of profit. A useful secondary check can be to evaluate whether China Hanking Holdings generated enough free cash flow to afford its dividend. It paid out 8.4% of its free cash flow as dividends last year, which is conservatively low.

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 how much of its profit China Hanking Holdings 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see China Hanking Holdings's earnings have been skyrocketing, up 106% per annum for the past five years. China Hanking Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. China Hanking Holdings has delivered an average of 17% per year annual increase in its dividend, based on the past eight years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is China Hanking Holdings worth buying for its dividend? It's great that China Hanking Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - China Hanking Holdings has 3 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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. Thank you for reading.