The board of Chen Hsong Holdings Limited (HKG:57) has announced that it will pay a dividend of HK$0.05 per share on the 23rd of September. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.
See our latest analysis for Chen Hsong Holdings
Chen Hsong Holdings' Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Chen Hsong Holdings' earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share could rise by 2.2% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was HK$0.085 in 2014, and the most recent fiscal year payment was HK$0.08. Payments have been decreasing at a very slow pace in this time period. A company that decreases its dividend over time generally isn't what we are looking for.
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. Earnings per share has been crawling upwards at 2.2% per year. Growth of 2.2% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
Our Thoughts On Chen Hsong Holdings' Dividend
Even though the dividend was cut this year, we think Chen Hsong Holdings has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
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. For example, we've picked out 1 warning sign for Chen Hsong Holdings that investors should know about before committing capital to this stock. Is Chen Hsong Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.