The board of IWS Group Holdings Limited (HKG:6663) has announced that it will be increasing its dividend on the 12th of October to HK$0.054. This will take the annual payment from 6.9% to 6.9% of the stock price, which is above what most companies in the industry pay.
IWS Group Holdings' Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, IWS Group Holdings' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 193% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
Over the next year, EPS could expand by 32.8% if recent trends continue. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 58% which brings it into quite a comfortable range.
IWS Group Holdings Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The first annual payment during the last 2 years was HK$0.02 in 2020, and the most recent fiscal year payment was HK$0.054. This means that it has been growing its distributions at 64% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
IWS Group Holdings' Dividend Might Lack Growth
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see IWS Group Holdings has been growing its earnings per share at 33% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which IWS Group Holdings hasn't been doing.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think IWS Group Holdings will make a great income stock. Strong earnings growth means IWS Group Holdings has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think IWS Group Holdings is a great stock to add to your portfolio if income is your focus.
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. As an example, we've identified 5 warning signs for IWS Group Holdings 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.
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