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

Kato (Hong Kong) Holdings Limited (HKG:2189) is reducing its dividend from last year's comparable payment to HK$0.022 on the 31st of August. However, the dividend yield of 7.1% is still a decent boost to shareholder returns.

Check out our latest analysis for Kato (Hong Kong) Holdings

Kato (Hong Kong) Holdings' Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Kato (Hong Kong) Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 21.0% if recent trends continue. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

Kato (Hong Kong) Holdings Is Still Building Its Track Record

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. The annual payment during the last 4 years was HK$0.04 in 2019, and the most recent fiscal year payment was HK$0.044. This implies that the company grew its distributions at a yearly rate of about 2.4% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Kato (Hong Kong) Holdings has grown earnings per share at 21% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Kato (Hong Kong) Holdings' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Kato (Hong Kong) Holdings does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Kato (Hong Kong) Holdings that investors need to be conscious of moving forward. Is Kato (Hong Kong) Holdings 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.