Sinofert Holdings' (HKG:297) Dividend Will Be Increased To CN¥0.0623

The board of Sinofert Holdings Limited (HKG:297) has announced that it will be increasing its dividend by 18% on the 18th of July to CN¥0.0623, up from last year's comparable payment of CN¥0.0528. Although the dividend is now higher, the yield is only 5.7%, which is below the industry average.

See our latest analysis for Sinofert Holdings

Sinofert Holdings' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Sinofert 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.

EPS is set to fall by 5.7% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 47%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from CN¥0.0187 total annually to CN¥0.0541. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Sinofert Holdings has grown earnings per share at 57% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Sinofert Holdings Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Sinofert Holdings has 2 warning signs (and 1 which is significant) we think you should know about. Is Sinofert Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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