Far East Horizon's (HKG:3360) Upcoming Dividend Will Be Larger Than Last Year's

The board of Far East Horizon Limited (HKG:3360) has announced that it will be paying its dividend of CN¥0.50 on the 28th of June, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 9.1%, providing a nice boost to shareholder returns.

View our latest analysis for Far East Horizon

Far East Horizon's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Far East Horizon was paying a whopping 170% as a dividend, but this only made up 31% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 13.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Far East Horizon Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of CN¥0.181 in 2014 to the most recent total annual payment of CN¥0.459. This implies that the company grew its distributions at a yearly rate of about 9.7% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

We Could See Far East Horizon's Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Far East Horizon has been growing its earnings per share at 7.0% a year over the past five years. Far East Horizon definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Far East Horizon will make a great income stock. While Far East Horizon is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 identified 2 warning signs for Far East Horizon (1 shouldn't be ignored!) that you should be aware of before investing. Is Far East Horizon not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.