Chevalier International Holdings (HKG:25) Has Announced That It Will Be Increasing Its Dividend To HK$0.39

By
Simply Wall St
Published
August 25, 2021
SEHK:25
Source: Shutterstock

The board of Chevalier International Holdings Limited (HKG:25) has announced that it will be increasing its dividend on the 17th of September to HK$0.39. This takes the annual payment to 5.5% of the current stock price, which is about average for the industry.

See our latest analysis for Chevalier International Holdings

Chevalier International Holdings' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Chevalier International Holdings' dividend was only 26% of earnings, however it was paying out 151% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 15.2% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
SEHK:25 Historic Dividend August 25th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from HK$0.75 in 2011 to the most recent annual payment of HK$0.55. This works out to be a decline of approximately 3.1% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

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. Chevalier International Holdings has impressed us by growing EPS at 15% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Chevalier International Holdings will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Chevalier International Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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