Hong Kong Finance Group (HKG:1273) Has Announced A Dividend Of HK$0.013

Hong Kong Finance Group Limited (HKG:1273) has announced that it will pay a dividend of HK$0.013 per share on the 16th of January. This means that the annual payment will be 7.6% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Hong Kong Finance Group

Hong Kong Finance Group's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Hong Kong Finance Group was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 0.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 20%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Hong Kong Finance Group's Dividend Has Lacked Consistency

Looking back, Hong Kong Finance Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of HK$0.028 in 2014 to the most recent total annual payment of HK$0.026. The dividend has shrunk at a rate of less than 1% a year over this period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, Hong Kong Finance Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Hong Kong Finance Group's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Hong Kong Finance Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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