Fairwood Holdings (HKG:52) Is Increasing Its Dividend To HK$0.60

Fairwood Holdings Limited (HKG:52) will increase its dividend on the 7th of October to HK$0.60. This makes the dividend yield 5.1%, which is above the industry average.

View our latest analysis for Fairwood Holdings

Fairwood 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 made up 76% of earnings, but cash flows were much higher. 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

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from HK$0.48 in 2011 to the most recent annual payment of HK$0.90. This works out to be a compound annual growth rate (CAGR) of approximately 6.5% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Fairwood Holdings might have put its house in order since then, but we remain cautious.

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. Fairwood Holdings has seen earnings per share falling at 5.7% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Fairwood Holdings' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Fairwood Holdings you should be aware of, and 1 of them is a bit concerning. We have also put together a list of global stocks with a solid dividend.

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