Million Hope Industries Holdings (HKG:1897) Is Reducing Its Dividend To HK$0.017

The board of Million Hope Industries Holdings Limited (HKG:1897) has announced it will be reducing its dividend by 19% from last year's payment of HK$0.021 on the 24th of July, with shareholders receiving HK$0.017. The yield is still above the industry average at 6.4%.

See our latest analysis for Million Hope Industries Holdings

Million Hope Industries Holdings Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Million Hope Industries Holdings' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Looking forward, EPS could fall by 19.4% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 108%, which is definitely a bit high to be sustainable going forward.

Million Hope Industries Holdings' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 4 years was HK$0.02 in 2019, and the most recent fiscal year payment was HK$0.025. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Million Hope Industries Holdings might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 19% over the last three years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Million Hope Industries Holdings has 5 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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