Precious Dragon Technology Holdings' (HKG:1861) Shareholders Will Receive A Bigger Dividend Than Last Year

Precious Dragon Technology Holdings Limited (HKG:1861) will increase its dividend from last year's comparable payment on the 26th of June to HK$0.0269. Even though the dividend went up, the yield is still quite low at only 2.4%.

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 67% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Precious Dragon Technology Holdings

Precious Dragon Technology Holdings' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Precious Dragon Technology Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 4.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% by next year, which is in a pretty sustainable range.

Precious Dragon Technology Holdings' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from an annual total of HK$0.028 in 2019 to the most recent total annual payment of 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.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 4.0% a year for the past three years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, Precious Dragon Technology Holdings has the option to increase the payout ratio to return more cash to shareholders.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Precious Dragon Technology Holdings has 3 warning signs (and 2 which are concerning) we think you should know about. Is Precious Dragon Technology 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.