Yan Tat Group Holdings Limited (HKG:1480) is reducing its dividend from last year's comparable payment to HK$0.06 on the 3rd of July. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.
Yan Tat Group Holdings' Payment Could Potentially Have Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, Yan Tat Group Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Looking forward, earnings per share could rise by 1.5% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 26% by next year, which is in a pretty sustainable range.
View our latest analysis for Yan Tat Group Holdings
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$0.05 in 2015, and the most recent fiscal year payment was HK$0.06. This works out to be a compound annual growth rate (CAGR) of approximately 1.8% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth May Be Hard To Achieve
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. However, Yan Tat Group Holdings' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
In Summary
Even though the dividend was cut this year, we think Yan Tat Group Holdings has the ability to make consistent payments in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Yan Tat Group Holdings that investors should take into consideration. Is Yan Tat Group Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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