Luk Fook Holdings (International) Limited (HKG:590) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of September to HK$0.64. This makes the dividend yield 9.3%, which is above the industry average.
See our latest analysis for Luk Fook Holdings (International)
Luk Fook Holdings (International)'s Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Luk Fook Holdings (International)'s dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 3.7%. 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.
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 dividend has gone from HK$1.28 total annually to HK$1.36. Dividend payments have grown at less than 1% a year over this period. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Luk Fook Holdings (International) May Find It Hard To Grow The Dividend
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. Earnings has been rising at 3.4% per annum over the last five years, which admittedly is a bit slow. Luk Fook Holdings (International) is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
In Summary
Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Luk Fook Holdings (International) that you should be aware of before investing. Is Luk Fook Holdings (International) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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