IWS Group Holdings (HKG:6663) Is Increasing Its Dividend To HK$0.054

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 makes the dividend yield 7.2%, which is above the industry average.

See our latest analysis for IWS Group Holdings

IWS Group Holdings' Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is 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 203% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS could expand by 32.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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. Since 2020, the dividend has gone from HK$0.02 to HK$0.054. This works out to be a compound annual growth rate (CAGR) of approximately 64% a year over that time. 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. IWS Group Holdings has seen EPS rising for the last five years, at 33% per annum. 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, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, IWS Group Holdings has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about. 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.