Mainland Headwear Holdings (HKG:1100) Has Announced That It Will Be Increasing Its Dividend To HK$0.06

Mainland Headwear Holdings Limited (HKG:1100) will increase its dividend on the 24th of June to HK$0.06. This makes the dividend yield 4.7%, which is above the industry average.

View our latest analysis for Mainland Headwear Holdings

Mainland Headwear Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Mainland Headwear Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 12.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from HK$0.03 in 2012 to the most recent annual payment of HK$0.07. This means that it has been growing its distributions at 8.8% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Mainland Headwear Holdings has been growing its earnings per share at 12% a year over the past five years. Mainland Headwear Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Mainland Headwear Holdings' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Mainland Headwear Holdings that investors should take into consideration. Is Mainland Headwear Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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