Fairwood Holdings' (HKG:52) Upcoming Dividend Will Be Larger Than Last Year's

Fairwood Holdings Limited's (HKG:52) dividend will be increasing to HK$0.60 on 7th of October. This makes the dividend yield 5.0%, which is above the industry average.

See our latest analysis for Fairwood Holdings

Fairwood Holdings' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Fairwood Holdings' dividend made up quite a large proportion of earnings but only of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 1.2% over the next 12 months. If recent patterns in the dividend continue, we could see the payout ratio reaching 79% 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 first annual payment was HK$0.46, compared to the most recent full-year payment of HK$0.90. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. 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 see if earnings per share is growing. Over the past five years, it looks as though Fairwood Holdings' EPS has declined at around 5.7% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Fairwood Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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