Hang Chi Holdings (HKG:8405) Has Announced That Its Dividend Will Be Reduced To HK$0.04

Hang Chi Holdings Limited (HKG:8405) has announced that on 6th of June, it will be paying a dividend ofHK$0.04, which a reduction from last year's comparable dividend. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

View our latest analysis for Hang Chi Holdings

Hang Chi Holdings' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Hang Chi Holdings' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Earnings per share could rise by 1.3% over the next year if things go the same way as they have for the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.

Hang Chi Holdings' Dividend Has Lacked Consistency

It's comforting to see that Hang Chi Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2018, the dividend has gone from HK$0.03 total annually to HK$0.04. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Hang Chi Holdings hasn't seen much change in its earnings per share over the last five years. Growth of 1.3% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Even though the dividend was cut this year, we think Hang Chi Holdings has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Hang Chi Holdings that investors should take into consideration. Is Hang Chi 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.