Dream International (HKG:1126) Has Affirmed Its Dividend Of HK$0.02

The board of Dream International Limited (HKG:1126) has announced that it will pay a dividend of HK$0.02 per share on the 13th of October. Based on this payment, the dividend yield will be 4.2%, which is fairly typical for the industry.

View our latest analysis for Dream International

Dream International's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, based ont he last payment, Dream International was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

If the trend of the last few years continues, EPS will grow by 4.1% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from HK$0.06 in 2011 to the most recent annual payment of HK$0.12. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year 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.

Dream International May Find It Hard To Grow The Dividend

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. Earnings have grown at around 4.1% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Dream International could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Dream International's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Dream International has been making. We don't think Dream International is a great stock to add to your portfolio if income is your focus.

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 Dream International that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list 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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