Yau Lee Holdings (HKG:406) Has Announced A Dividend Of HK$0.025

The board of Yau Lee Holdings Limited (HKG:406) has announced that it will pay a dividend on the 10th of October, with investors receiving HK$0.025 per share. Including this payment, the dividend yield on the stock will be 4.3%, which is a modest boost for shareholders' returns.

Check out our latest analysis for Yau Lee Holdings

Yau Lee Holdings' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Yau Lee Holdings was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 17.4% over the next 12 months. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.

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 an annual total of HK$0.0238 in 2014 to the most recent total annual payment of HK$0.05. This implies that the company grew its distributions at a yearly rate of about 7.7% 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.

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. It's encouraging to see that Yau Lee Holdings has been growing its earnings per share at 17% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Yau Lee Holdings' prospects of growing its dividend payments in the future.

Our Thoughts On Yau Lee Holdings' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Yau Lee Holdings' payments, as there could be some issues with sustaining them into the future. While Yau Lee Holdings is earning enough to cover the payments, the cash flows are lacking. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Yau Lee Holdings (of which 2 shouldn't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.