Lung Kee (Bermuda) Holdings (HKG:255) Is Increasing Its Dividend To HK$0.15

Lung Kee (Bermuda) Holdings Limited (HKG:255) will increase its dividend on the 28th of September to HK$0.15. This makes the dividend yield 12%, which is above the industry average.

Check out our latest analysis for Lung Kee (Bermuda) Holdings

Lung Kee (Bermuda) 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. Before making this announcement, Lung Kee (Bermuda) Holdings' was paying out quite a large proportion of earnings and 86% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Over the next year, EPS could expand by 10.3% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 121%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from HK$0.36 in 2011 to the most recent annual payment of HK$0.33. Payments have been decreasing at a very slow pace in this time period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Lung Kee (Bermuda) Holdings Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Lung Kee (Bermuda) Holdings has seen EPS rising for the last five years, at 10% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Lung Kee (Bermuda) Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Lung Kee (Bermuda) Holdings will make a great income stock. Strong earnings growth means Lung Kee (Bermuda) Holdings has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. 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. However, there are other things to consider for investors when analysing stock performance. To that end, Lung Kee (Bermuda) Holdings has 2 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.
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