Tat Hong Equipment Service (HKG:2153) Has Announced That Its Dividend Will Be Reduced To CN¥0.016

Tat Hong Equipment Service Co., Ltd. (HKG:2153) is reducing its dividend from last year's comparable payment to CN¥0.016 on the 4th of November. This means that the annual payment is 1.4% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Tat Hong Equipment Service

Tat Hong Equipment Service Is Paying Out More Than It Is Earning

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Tat Hong Equipment Service's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, EPS could fall by 6.9% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 121%, which could put the dividend in jeopardy if the company's earnings don't improve.

Tat Hong Equipment Service Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth May Be Hard To Come By

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Tat Hong Equipment Service has seen earnings per share falling at 6.9% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Tat Hong Equipment Service that investors should know about before committing capital to this stock. Is Tat Hong Equipment Service not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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