Man Wah Holdings (HKG:1999) Is Reducing Its Dividend To HK$0.10

Man Wah Holdings Limited (HKG:1999) has announced it will be reducing its dividend payable on the 20th of July to HK$0.10, which is 41% lower than what investors received last year for the same period. The yield is still above the industry average at 6.0%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Man Wah Holdings' stock price has reduced by 34% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

See our latest analysis for Man Wah Holdings

Man Wah Holdings' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite comfortably covered by Man Wah Holdings' earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 85% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS could expand by 4.0% if recent trends continue. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was HK$0.0325, compared to the most recent full-year payment of HK$0.32. This means that it has been growing its distributions at 26% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Man Wah Holdings May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Man Wah Holdings has only grown its earnings per share at 4.0% per annum over the past five years. Growth of 4.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Man Wah Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Man Wah Holdings 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Man Wah Holdings that you should be aware of before investing. 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.