Mainland Headwear Holdings (HKG:1100) Is 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 will take the annual payment from 3.7% to 4.7% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Mainland Headwear Holdings

Mainland Headwear Holdings' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, Mainland Headwear Holdings' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 12.0% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was HK$0.03 in 2012, and the most recent fiscal year payment was HK$0.07. This works out to be a compound annual growth rate (CAGR) of approximately 8.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Mainland Headwear Holdings might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see Mainland Headwear Holdings has been growing its earnings per share at 12% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Mainland Headwear Holdings' prospects of growing its dividend payments in the future.

We Really Like Mainland Headwear Holdings' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing 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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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.