Smart-Core Holdings Limited (HKG:2166) is reducing its dividend from last year's comparable payment to HK$0.05 on the 28th of June. This means that the annual payment will be 3.7% of the current stock price, which is in line with the average for the industry.
View our latest analysis for Smart-Core Holdings
Smart-Core Holdings' Dividend Is Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, Smart-Core Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Unless the company can turn things around, EPS could fall by 1.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 38%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Smart-Core Holdings' Dividend Has Lacked Consistency
Smart-Core Holdings has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the dividend has gone from HK$0.04 total annually to HK$0.05. This means that it has been growing its distributions at 3.2% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that Smart-Core Holdings' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
Our Thoughts On Smart-Core Holdings' Dividend
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Smart-Core Holdings is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Smart-Core Holdings that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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