The board of Precious Dragon Technology Holdings Limited (HKG:1861) has announced that it will pay a dividend of HK$0.0219 per share on the 8th of July. This means that the annual payment is 3.4% of the current stock price, which is lower than what the rest of the industry is paying.
We've discovered 4 warning signs about Precious Dragon Technology Holdings. View them for free.Precious Dragon Technology Holdings' Projected Earnings Seem Likely To Cover Future Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Precious Dragon Technology Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
EPS is set to fall by 1.8% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 28%, which we are pretty comfortable with and we think is feasible on an earnings basis.
See our latest analysis for Precious Dragon Technology Holdings
Precious Dragon Technology Holdings' Dividend Has Lacked Consistency
Looking back, Precious Dragon Technology Holdings' dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2019, the dividend has gone from HK$0.028 total annually to HK$0.0361. This works out to be a compound annual growth rate (CAGR) of approximately 4.3% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
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. Although it's important to note that Precious Dragon Technology Holdings' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
In Summary
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Precious Dragon Technology Holdings is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 4 warning signs for Precious Dragon Technology Holdings that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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