Fairwood Holdings' (HKG:52) Dividend Will Be Increased To HK$0.60

Fairwood Holdings Limited (HKG:52) will increase its dividend on the 7th of October to HK$0.60. This takes the dividend yield from 5.0% to 5.0%, which shareholders will be pleased with.

See our latest analysis for Fairwood Holdings

Fairwood Holdings' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Fairwood Holdings was paying out 76% of earnings, but a comparatively small 17% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, could fall by 5.7% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 83% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the dividend has gone from HK$0.48 to HK$0.90. This works out to be a compound annual growth rate (CAGR) of approximately 6.5% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Fairwood Holdings' EPS has declined at around 5.7% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Fairwood 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Fairwood Holdings you should be aware of, and 1 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our curated list 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.
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