Fourace Industries Group Holdings' (HKG:1455) Shareholders Will Receive A Smaller Dividend Than Last Year

Fourace Industries Group Holdings Limited (HKG:1455) has announced that on 31st of August, it will be paying a dividend ofHK$0.015, which a reduction from last year's comparable dividend. The yield is still above the industry average at 7.2%.

See our latest analysis for Fourace Industries Group Holdings

Fourace Industries Group Holdings' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Fourace Industries Group Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 9.8% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 36%, which is definitely feasible to continue.

Fourace Industries Group Holdings Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Fourace Industries Group Holdings has seen earnings per share drop by 9.8% over the last year. This happening for one year isn't too much of an issue, but we wouldn't want to see it continue. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Fourace Industries Group Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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