IWS Group Holdings' (HKG:6663) Dividend Will Be Increased To HK$0.054

The board of IWS Group Holdings Limited (HKG:6663) has announced that it will be paying its dividend of HK$0.054 on the 12th of October, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 9.2%, providing a nice boost to shareholder returns.

View our latest analysis for IWS Group Holdings

IWS Group Holdings' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. 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 203% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

If the trend of the last few years continues, EPS will grow by 32.8% over the next 12 months. 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 dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The 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 implies that the company grew its distributions at a yearly rate of about 64% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

IWS Group Holdings' Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that IWS Group Holdings has been growing its earnings per share at 33% a year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

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 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. For example, we've identified 4 warning signs for IWS Group Holdings (1 can't be ignored!) that you should be aware of before investing. Is IWS Group Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.