BOE Varitronix Limited (HKG:710) is reducing its dividend from last year's comparable payment to HK$0.17 on the 18th of July. This payment takes the dividend yield to 2.9%, which only provides a modest boost to overall returns.
BOE Varitronix's Projected Earnings Seem Likely To Cover Future Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, BOE Varitronix was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
The next year is set to see EPS grow by 72.3%. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.
Check out our latest analysis for BOE Varitronix
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from HK$0.50 total annually to HK$0.17. Dividend payments have fallen sharply, down 66% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see that BOE Varitronix has been growing its earnings per share at 71% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
BOE Varitronix Looks Like A Great Dividend Stock
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that BOE Varitronix has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for BOE Varitronix that investors need to be conscious of moving forward. Is BOE Varitronix not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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