Man Wah Holdings (HKG:1999) Is Increasing Its Dividend To HK$0.15

The board of Man Wah Holdings Limited (HKG:1999) has announced that it will be increasing its dividend by 15% on the 16th of December to HK$0.15, up from last year's comparable payment of HK$0.13. This takes the annual payment to 4.4% of the current stock price, which is about average for the industry.

Our analysis indicates that 1999 is potentially undervalued!

Man Wah Holdings' Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last payment was quite easily covered by earnings, but it made up 201% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 50.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was HK$0.0325 in 2012, and the most recent fiscal year payment was HK$0.30. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. Man Wah Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Man Wah Holdings Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Man Wah Holdings has grown earnings per share at 6.8% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Man Wah Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Man Wah Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection 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.