Stock Analysis

Asia Financial Holdings (HKG:662) Is Increasing Its Dividend To HK$0.04

SEHK:662
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Asia Financial Holdings Limited (HKG:662) has announced that it will be increasing its dividend on the 8th of October to HK$0.04, which will be 300% higher than last year. Despite this raise, the dividend yield of 3.1% is only a modest boost to shareholder returns.

View our latest analysis for Asia Financial Holdings

Asia Financial Holdings' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Asia Financial Holdings was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 68.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 9.3%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
SEHK:662 Historic Dividend September 13th 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from HK$0.077 in 2011 to the most recent annual payment of HK$0.08. Dividend payments have grown at less than 1% a year over this period. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Asia Financial Holdings has grown earnings per share at 68% 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.

Our Thoughts On Asia Financial Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Asia Financial Holdings will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Asia Financial Holdings is a great stock to add to your portfolio if income is your focus.

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 1 warning sign for Asia Financial Holdings that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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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.
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