China Electronics Huada Technology Company Limited (HKG:85) is reducing its dividend from last year's comparable payment to HK$0.09 on the 31st of July. However, the dividend yield of 6.4% is still a decent boost to shareholder returns.
China Electronics Huada Technology's Projected Earnings Seem Likely To Cover Future Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, China Electronics Huada Technology's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
If the trend of the last few years continues, EPS will grow by 30.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.
See our latest analysis for China Electronics Huada Technology
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. Since 2015, the annual payment back then was HK$0.03, compared to the most recent full-year payment of HK$0.09. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
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. China Electronics Huada Technology has seen EPS rising for the last five years, at 31% 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.
We Really Like China Electronics Huada Technology's Dividend
Overall, we think that China Electronics Huada Technology could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for China Electronics Huada Technology that investors should take into consideration. 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.