Kato (Hong Kong) Holdings' (HKG:2189) Dividend Is Being Reduced To HK$0.022

Kato (Hong Kong) Holdings Limited's (HKG:2189) dividend is being reduced from last year's payment covering the same period to HK$0.022 on the 31st of August. The yield is still above the industry average at 7.1%.

View our latest analysis for Kato (Hong Kong) Holdings

Kato (Hong Kong) Holdings' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Kato (Hong Kong) Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 21.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

Kato (Hong Kong) Holdings Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2019, the annual payment back then was HK$0.04, compared to the most recent full-year payment of HK$0.044. This means that it has been growing its distributions at 2.4% per annum over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Kato (Hong Kong) Holdings has been growing its earnings per share at 21% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Kato (Hong Kong) Holdings Looks Like A Great Dividend Stock

Overall, we think that Kato (Hong Kong) Holdings could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Kato (Hong Kong) Holdings 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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