The board of Pico Far East Holdings Limited (HKG:752) has announced that it will pay a dividend on the 26th of July, with investors receiving HK$0.055 per share. Despite this raise, the dividend yield of 4.9% is only a modest boost to shareholder returns.
View our latest analysis for Pico Far East Holdings
Pico Far East Holdings' Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Pico Far East Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, EPS could fall by 3.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 66%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was HK$0.10, compared to the most recent full-year payment of HK$0.09. This works out to be a decline of approximately 1.0% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Pico Far East Holdings May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Pico Far East Holdings has seen earnings per share falling at 3.5% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Pico Far East Holdings will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
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 example, we've identified 2 warning signs for Pico Far East Holdings (1 doesn't sit too well with us!) that you should be aware of before investing. 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.
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