Precious Dragon Technology Holdings (HKG:1861) Is Paying Out Less In Dividends Than Last Year

Precious Dragon Technology Holdings Limited (HKG:1861) has announced it will be reducing its dividend payable on the 27th of October to HK$0.0036, which is 82% lower than what investors received last year. Based on this payment, the dividend yield will be 0.9%, which is lower than the average for the industry.

See our latest analysis for Precious Dragon Technology Holdings

Precious Dragon Technology Holdings' Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Precious Dragon Technology Holdings was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 39.0% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 6.4%, which is definitely feasible to continue.

Precious Dragon Technology Holdings Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The first annual payment during the last 2 years was HK$0.028 in 2019, and the most recent fiscal year payment was HK$0.044. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. EPS has fallen over the last year, with this year's number 39% below last year. Decreases in earnings as large as this could start to put some pressure on the dividend if they are sustained for several years. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

Our Thoughts On Precious Dragon Technology Holdings' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Precious Dragon Technology Holdings you should be aware of, and 1 of them shouldn't be ignored. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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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