Zhou Hei Ya International Holdings' (HKG:1458) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Zhou Hei Ya International Holdings Company Limited (HKG:1458) has announced that it will be increasing its dividend on the 30th of June to HK$0.12. Although the dividend is now higher, the yield is only 2.8%, which is below the industry average.

See our latest analysis for Zhou Hei Ya International Holdings

Zhou Hei Ya International Holdings' Payment Has Solid Earnings Coverage

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.

Over the next year, EPS is forecast to expand by 20.0%. If the dividend continues on this path, the payout ratio could be 65% by next year, which we think can be pretty sustainable going forward.

Zhou Hei Ya International Holdings' Dividend Has Lacked Consistency

Zhou Hei Ya International Holdings has been paying dividends for a while, but the track record isn't stellar. 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 means that it has been growing its distributions at 2.1% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 16% over the last five years. 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Zhou Hei Ya International Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Zhou Hei Ya International Holdings' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Zhou Hei Ya International Holdings that investors should take into consideration. 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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