Hong Kong Johnson Holdings' (HKG:1955) Shareholders Will Receive A Smaller Dividend Than Last Year

Hong Kong Johnson Holdings Co., Ltd. (HKG:1955) has announced it will be reducing its dividend payable on the 10th of October to HK$0.05. The dividend yield will be in the average range for the industry at 4.6%.

Check out our latest analysis for Hong Kong Johnson Holdings

Hong Kong Johnson Holdings' Earnings Easily Cover the Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Hong Kong Johnson Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 64.6% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

Hong Kong Johnson Holdings Is Still Building Its Track Record

It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. 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.

The Dividend Looks Likely To Grow

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Hong Kong Johnson Holdings has impressed us by growing EPS at 65% per year over the past three years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Hong Kong Johnson Holdings' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Hong Kong Johnson Holdings does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for Hong Kong Johnson Holdings that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.