Infinity Development Holdings' (HKG:640) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Infinity Development Holdings Company Limited (HKG:640) has announced that the dividend on 27th of June will be increased to HK$0.024, which will be 26% higher than last year's payment of HK$0.019 which covered the same period. This makes the dividend yield about the same as the industry average at 8.6%.

View our latest analysis for Infinity Development Holdings

Infinity Development Holdings' Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Infinity Development Holdings is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share could rise by 24.2% 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 47%, 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 one cut in the last 10 years. Since 2013, the dividend has gone from HK$0.013 total annually to HK$0.062. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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. We are encouraged to see that Infinity Development Holdings has grown earnings per share at 24% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Infinity Development Holdings will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Infinity Development Holdings is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Infinity Development Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.