L.K. Technology Holdings Limited (HKG:558) will increase its dividend from last year's comparable payment on the 2nd of October to HK$0.05. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.
Check out our latest analysis for L.K. Technology Holdings
L.K. Technology Holdings' Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, L.K. Technology Holdings was paying a whopping 207% as a dividend, but this only made up 25% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Looking forward, earnings per share is forecast to rise by 29.7% over the next year. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.
L.K. Technology Holdings' Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the annual payment back then was HK$0.0327, compared to the most recent full-year payment of HK$0.10. This means that it has been growing its distributions at 15% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. L.K. Technology Holdings has seen EPS rising for the last five years, at 21% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Our Thoughts On L.K. Technology Holdings' Dividend
Overall, we always like to see the dividend being raised, but we don't think L.K. Technology Holdings will make a great income stock. While L.K. Technology Holdings is earning enough to cover the payments, the cash flows are lacking. 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 6 analysts we track are forecasting for L.K. Technology Holdings for free with public analyst estimates for the company. Is L.K. Technology Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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