Maike Tube Industry Holdings' (HKG:1553) Shareholders Will Receive A Smaller Dividend Than Last Year

Maike Tube Industry Holdings Limited (HKG:1553) has announced it will be reducing its dividend payable on the 6th of July to HK$0.10. The yield is still above the industry average at 6.5%.

View our latest analysis for Maike Tube Industry Holdings

Maike Tube Industry Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Maike Tube Industry Holdings was paying a whopping 153% as a dividend, but this only made up 30% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS could expand by 35.4% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend.

Maike Tube Industry Holdings Doesn't Have A Long Payment History

It's not possible for us to make a backward looking judgement just based on a short payment history. 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.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Maike Tube Industry Holdings has impressed us by growing EPS at 35% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Maike Tube Industry Holdings that investors should take into consideration. Is Maike Tube Industry Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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