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

Hong Kong Johnson Holdings Co., Ltd.'s (HKG:1955) dividend is being reduced from last year's payment covering the same period to HK$0.0122 on the 10th of October. This means that the annual payment is 3.0% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Hong Kong Johnson Holdings

Hong Kong Johnson Holdings' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, Hong Kong Johnson Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Unless the company can turn things around, EPS could fall by 2.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 20%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Hong Kong Johnson Holdings' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from an annual total of HK$0.075 in 2021 to the most recent total annual payment of HK$0.0122. This works out to a decline of approximately 84% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. It's not great to see that Hong Kong Johnson Holdings' earnings per share has fallen at approximately 2.4% per year over the past three years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Our Thoughts On Hong Kong Johnson Holdings' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for Hong Kong Johnson 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 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.