Asia Financial Holdings' (HKG:662) Upcoming Dividend Will Be Larger Than Last Year's

Asia Financial Holdings Limited (HKG:662) will increase its dividend on the 10th of June to HK$0.10. The announced payment will take the dividend yield to 4.2%, which is in line with the average for the industry.

See our latest analysis for Asia Financial Holdings

Asia Financial Holdings' Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Asia Financial Holdings' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 14.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from HK$0.08 to HK$0.14. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Asia Financial Holdings has been growing its earnings per share at 14% a year over the past five years. Asia Financial Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Asia Financial Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Asia Financial Holdings' payments are rock solid. While Asia Financial Holdings is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Asia Financial Holdings that investors should know about before committing capital to this stock. Is Asia Financial 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.