The board of VCREDIT Holdings Limited (HKG:2003) has announced that it will be paying its dividend of CN¥0.20 on the 9th of July, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 4.6%.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that VCREDIT Holdings' stock price has increased by 125% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
VCREDIT Holdings' Payment Could Potentially Have Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, VCREDIT Holdings was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share could rise by 49.5% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for VCREDIT Holdings
VCREDIT Holdings' Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the dividend has gone from CN¥0.161 total annually to CN¥0.187. This implies that the company grew its distributions at a yearly rate of about 3.7% over that duration. 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.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. VCREDIT Holdings has seen EPS rising for the last five years, at 50% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Our Thoughts On VCREDIT Holdings' Dividend
Overall, we always like to see the dividend being raised, but we don't think VCREDIT Holdings will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for VCREDIT Holdings (1 is a bit unpleasant!) 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.