Precious Dragon Technology Holdings (HKG:1861) Is Increasing Its Dividend To HK$0.0172

Precious Dragon Technology Holdings Limited (HKG:1861) has announced that it will be increasing its periodic dividend on the 31st of October to HK$0.0172, which will be 107% higher than last year's comparable payment amount of HK$0.0083. Even though the dividend went up, the yield is still quite low at only 1.8%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Precious Dragon Technology Holdings' stock price has increased by 50% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Precious Dragon Technology Holdings

Precious Dragon Technology Holdings' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Precious Dragon Technology Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 3.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

Precious Dragon Technology Holdings' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2019, the dividend has gone from HK$0.028 total annually to HK$0.0352. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Precious Dragon Technology Holdings might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Precious Dragon Technology Holdings has only grown its earnings per share at 3.7% per annum over the past three years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Precious Dragon Technology Holdings you should be aware of, and 2 of them shouldn't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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