Yip's Chemical Holdings' (HKG:408) Upcoming Dividend Will Be Larger Than Last Year's

Yip's Chemical Holdings Limited's (HKG:408) dividend will be increasing to HK$0.22 on 12th of October. This will take the annual payment from 5.4% to 7.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Yip's Chemical Holdings

Yip's Chemical Holdings' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 484% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share could rise by 44.6% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the dividend has gone from HK$0.32 to HK$0.28. The dividend has shrunk at around 1.3% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Yip's Chemical Holdings has seen EPS rising for the last five years, at 45% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Yip's Chemical Holdings could prove to be a strong dividend payer.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Yip's Chemical Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Yip's Chemical Holdings is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Yip's Chemical Holdings that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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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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