Kato (Hong Kong) Holdings (HKG:2189) Is Paying Out A Dividend Of HK$0.02

The board of Kato (Hong Kong) Holdings Limited (HKG:2189) has announced that it will pay a dividend on the 29th of September, with investors receiving HK$0.02 per share. This payment means that the dividend yield will be 4.4%, which is around the industry average.

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Estimates Indicate Kato (Hong Kong) Holdings' Could Struggle to Maintain Dividend Payments In The Future

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last payment made up 91% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 15.4% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 104%, which could put the dividend in jeopardy if the company's earnings don't improve.

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

Kato (Hong Kong) Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2019, the annual payment back then was HK$0.04, compared to the most recent full-year payment of HK$0.02. This works out to a decline of approximately 50% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

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. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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 a bit concerning!) you should know about. 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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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.