Public Financial Holdings' (HKG:626) Dividend Will Be Reduced To HK$0.11

Public Financial Holdings Limited (HKG:626) is reducing its dividend to HK$0.11 on the 24th of Februarywhich is 27% less than last year's comparable payment of HK$0.15. Despite the cut, the dividend yield of 8.3% will still be comparable to other companies in the industry.

Check out our latest analysis for Public Financial Holdings

Public Financial Holdings' Earnings Will Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Having distributed dividends for at least 10 years, Public Financial Holdings has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 50%, which means that Public Financial Holdings would be able to pay its last dividend without pressure on the balance sheet.

EPS is set to fall by 0.04% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the future payout ratio could be 40%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was HK$0.16, compared to the most recent full-year payment of HK$0.20. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Public Financial 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.

Our Thoughts On Public Financial Holdings' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Public Financial Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. To that end, Public Financial Holdings has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Public Financial Holdings 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.