The board of Eagle Nice (International) Holdings Limited (HKG:2368) has announced that it will be increasing its dividend on the 15th of September to HK$0.12. This makes the dividend yield 8.4%, which is above the industry average.
Eagle Nice (International) 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. The last payment made up 71% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS could expand by 18.7% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 70% by next year, which is in a pretty sustainable range.
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 dividend has gone from HK$0.15 in 2011 to the most recent annual payment of HK$0.42. This means that it has been growing its distributions at 11% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Eagle Nice (International) Holdings has impressed us by growing EPS at 19% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
We Really Like Eagle Nice (International) 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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 Eagle Nice (International) Holdings that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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