Town Ray Holdings (HKG:1692) Will Pay A Larger Dividend Than Last Year At HK$0.193

Town Ray Holdings Limited (HKG:1692) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of June to HK$0.193. This takes the dividend yield to 9.4%, which shareholders will be pleased with.

Check out our latest analysis for Town Ray Holdings

Town Ray 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. The last payment made up 80% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share could rise by 25.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 64% which brings it into quite a comfortable range.

Town Ray Holdings Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of HK$0.106 in 2020 to the most recent total annual payment of HK$0.301. This works out to be a compound annual growth rate (CAGR) of approximately 42% 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.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Town Ray Holdings has impressed us by growing EPS at 25% per year over the past three 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.

Our Thoughts On Town Ray Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Town Ray Holdings will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good 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 example, we've picked out 1 warning sign for Town Ray Holdings that investors should know about before committing capital to this stock. Is Town Ray 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.