Zhou Hei Ya International Holdings (HKG:1458) Is Increasing Its Dividend To HK$0.12

Zhou Hei Ya International Holdings Company Limited's (HKG:1458) dividend will be increasing to HK$0.12 on 30th of June. This takes the annual payment to 2.7% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Zhou Hei Ya International Holdings

Zhou Hei Ya International Holdings' Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Zhou Hei Ya International Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 80.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Zhou Hei Ya International Holdings' Dividend Has Lacked Consistency

Looking back, Zhou Hei Ya International Holdings' 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 CN¥0.09 in 2017 to the most recent annual payment of CN¥0.10. This works out to be a compound annual growth rate (CAGR) of approximately 2.1% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Zhou Hei Ya International Holdings' EPS has declined at around 17% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Zhou Hei Ya International Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Zhou Hei Ya International 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 don't think Zhou Hei Ya International Holdings is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 1 warning sign for Zhou Hei Ya International Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.