Kato (Hong Kong) Holdings (HKG:2189) Will Pay A Larger Dividend Than Last Year At HK$0.025

Kato (Hong Kong) Holdings Limited (HKG:2189) will increase its dividend on the 1st of January to HK$0.025. This makes the dividend yield 6.9%, which is above the industry average.

See our latest analysis for Kato (Hong Kong) Holdings

Kato (Hong Kong) Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Kato (Hong Kong) Holdings was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

If the trend of the last few years continues, EPS will grow by 17.3% over the next 12 months. 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 Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. Since 2019, the dividend has gone from HK$0.04 to HK$0.05. This implies that the company grew its distributions at a yearly rate of about 7.7% over that duration. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Kato (Hong Kong) Holdings has been growing its earnings per share at 17% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Kato (Hong Kong) Holdings' Dividend

Overall, a dividend increase is always good, and we think that Kato (Hong Kong) Holdings is a strong income stock thanks to its track record and growing earnings. 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. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.