Kato (Hong Kong) Holdings (HKG:2189) Has Announced A Dividend Of HK$0.02

The board of Kato (Hong Kong) Holdings Limited (HKG:2189) has announced that it will pay a dividend of HK$0.02 per share on the 17th of September. This makes the dividend yield 4.5%, which will augment investor returns quite nicely.

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Kato (Hong Kong) Holdings' Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Kato (Hong Kong) Holdings was paying out 91% of earnings, but a comparatively small of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

If the company can't turn things around, EPS could fall by 15.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 104%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Kato (Hong Kong) Holdings

Kato (Hong Kong) Holdings' Dividend Has Lacked Consistency

It's comforting to see that Kato (Hong Kong) Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2019, the dividend has gone from HK$0.04 total annually to HK$0.02. The dividend has fallen 50% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Kato (Hong Kong) Holdings' earnings per share has shrunk at 15% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Kato (Hong Kong) Holdings' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kato (Hong Kong) Holdings' payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Kato (Hong Kong) Holdings (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.