Stock Analysis

Asia Financial Holdings (HKG:662) Will Pay A Larger Dividend Than Last Year At HK$0.10

SEHK:662
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Asia Financial Holdings Limited (HKG:662) has announced that it will be increasing its dividend on the 10th of June to HK$0.10. The announced payment will take the dividend yield to 4.3%, 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.

Looking forward, earnings per share could rise by 14.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

historic-dividend
SEHK:662 Historic Dividend May 1st 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was HK$0.08 in 2012, and the most recent fiscal year payment was HK$0.14. This implies that the company grew its distributions at a yearly rate of about 6.1% over that duration. 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. Asia Financial Holdings has seen EPS rising for the last five years, at 14% per annum. 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

Overall, we always like to see the dividend being raised, but we don't think Asia Financial Holdings will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Asia Financial Holdings is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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. If you are a dividend investor, you might also want to look at our curated list of high yield 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.