Kato (Hong Kong) Holdings (HKG:2189) Is Paying Out Less In Dividends Than Last Year

Kato (Hong Kong) Holdings Limited (HKG:2189) has announced that on 31st of August, it will be paying a dividend ofHK$0.022, which a reduction from last year's comparable dividend. However, the dividend yield of 7.2% is still a decent boost to shareholder returns.

See our latest analysis for Kato (Hong Kong) Holdings

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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. 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.

Over the next year, EPS could expand by 21.0% if recent trends continue. 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

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. 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. Kato (Hong Kong) Holdings hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

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 21% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Kato (Hong Kong) Holdings that investors should take into consideration. 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.