Far East Horizon Limited (HKG:3360) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of June to CN¥0.50. Based on this payment, the dividend yield for the company will be 7.9%, which is fairly typical for the industry.
See our latest analysis for Far East Horizon
Far East Horizon's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Far East Horizon's dividend was only 31% of earnings, however it was paying out 170% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Over the next year, EPS is forecast to expand by 13.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.
Far East Horizon Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was CN¥0.181, compared to the most recent full-year payment of CN¥0.459. This implies that the company grew its distributions at a yearly rate of about 9.7% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
We Could See Far East Horizon's Dividend Growing
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Far East Horizon has been growing its earnings per share at 7.0% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Far East Horizon's prospects of growing its dividend payments in the future.
Our Thoughts On Far East Horizon's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Far East Horizon is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Far East Horizon (of which 1 is significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.