Kato (Hong Kong) Holdings (HKG:2189) Is Increasing Its Dividend To HK$0.025

Kato (Hong Kong) Holdings Limited (HKG:2189) will increase its dividend from last year's comparable payment on the 26th of August to HK$0.025. This will take the dividend yield to an attractive 7.8%, providing a nice boost to shareholder returns.

View our latest analysis for Kato (Hong Kong) Holdings

Kato (Hong Kong) Holdings' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Kato (Hong Kong) 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 could rise by 17.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.

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

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The annual payment during the last 3 years was HK$0.04 in 2019, and the most recent fiscal year payment was HK$0.05. This works out to be a compound annual growth rate (CAGR) of approximately 7.7% a year over that time. Kato (Hong Kong) Holdings has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Kato (Hong Kong) Holdings has grown earnings per share at 17% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like Kato (Hong Kong) Holdings' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. 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. 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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