Tan Chong International Limited (HKG:693) will increase its dividend on the 26th of June to HK$0.055, which is 22% higher than last year's payment from the same period of HK$0.045. This makes the dividend yield 7.4%, which is above the industry average.
Tan Chong International's Future Dividend Projections Appear Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Tan Chong International's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share could rise by 17.6% 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 26%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for Tan Chong International
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 dividend has gone from an annual total of HK$0.105 in 2015 to the most recent total annual payment of HK$0.075. This works out to be a decline of approximately 3.3% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Looks Likely To Grow
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. Tan Chong International has impressed us by growing EPS at 18% per year over the past five years. Tan Chong International definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Tan Chong International Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Tan Chong International is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Tan Chong International (of which 1 doesn't sit too well with us!) you should know about. Is Tan Chong International 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.