Stock Analysis

Should Fujikon Industrial Holdings Limited (HKG:927) Be Part Of Your Dividend Portfolio?

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SEHK:927
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Is Fujikon Industrial Holdings Limited (HKG:927) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

In this case, Fujikon Industrial Holdings likely looks attractive to investors, given its 4.5% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. There are a few simple ways to reduce the risks of buying Fujikon Industrial Holdings for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Fujikon Industrial Holdings!

historic-dividend
SEHK:927 Historic Dividend March 12th 2021

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Although Fujikon Industrial Holdings pays a dividend, it was loss-making during the past year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Fujikon Industrial Holdings' cash payout ratio last year was 12%, which is quite low and suggests that the dividend was thoroughly covered by cash flow.

With a strong net cash balance, Fujikon Industrial Holdings investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of Fujikon Industrial Holdings' latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Fujikon Industrial Holdings has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was HK$0.1 in 2011, compared to HK$0.05 last year. This works out to be a decline of approximately 8.4% per year over that time. Fujikon Industrial Holdings' dividend hasn't shrunk linearly at 8.4% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Fujikon Industrial Holdings for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Fujikon Industrial Holdings has grown its earnings per share at 19% per annum over the past five years. Earnings per share have been growing at a good rate, and the company is paying less than half its earnings as dividends. We generally think this is an attractive combination, as it permits further reinvestment in the business.

Conclusion

To summarise, shareholders should always check that Fujikon Industrial Holdings' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that Fujikon Industrial Holdings paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Fujikon Industrial Holdings out there.

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. As an example, we've identified 2 warning signs for Fujikon Industrial Holdings that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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