Yau Lee Holdings' (HKG:406) Dividend Will Be HK$0.025

Yau Lee Holdings Limited (HKG:406) will pay a dividend of HK$0.025 on the 10th of October. Including this payment, the dividend yield on the stock will be 3.5%, which is a modest boost for shareholders' returns.

See our latest analysis for Yau Lee Holdings

Yau Lee Holdings' Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Yau Lee Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Unless the company can turn things around, EPS could fall by 1.1% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 49%, which is definitely feasible to continue.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was HK$0.02, compared to the most recent full-year payment of HK$0.05. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Yau Lee 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 Yau Lee Holdings' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Yau Lee Holdings (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection 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.