Carpenter Tan Holdings' (HKG:837) Shareholders Will Receive A Bigger Dividend Than Last Year

Carpenter Tan Holdings Limited (HKG:837) will increase its dividend on the 30th of June to HK$0.27. This takes the dividend yield to 7.7%, which shareholders will be pleased with.

View our latest analysis for Carpenter Tan Holdings

Carpenter Tan 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. Prior to this announcement, Carpenter Tan Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

EPS is set to fall by 1.0% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 61%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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 first annual payment during the last 10 years was CN¥0.18 in 2012, and the most recent fiscal year payment was CN¥0.22. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Carpenter Tan Holdings' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Carpenter Tan Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Carpenter Tan Holdings will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 2 warning signs for Carpenter Tan Holdings (of which 1 is a bit unpleasant!) you should know about. Is Carpenter Tan 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.