Carpenter Tan Holdings (HKG:837) Will Pay A Larger Dividend Than Last Year At HK$0.27

Carpenter Tan Holdings Limited's (HKG:837) dividend will be increasing to HK$0.27 on 30th of June. This makes the dividend yield 8.2%, which is above the industry average.

See our latest analysis for Carpenter Tan Holdings

Carpenter Tan Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 123% 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.

Looking forward, EPS could fall by 1.0% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 61%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from CN¥0.18 to CN¥0.22. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. 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.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Carpenter Tan Holdings' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Carpenter Tan Holdings' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Carpenter Tan Holdings will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Carpenter Tan Holdings has 3 warning signs (and 2 which are potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.