Looking For Steady Income For Your Dividend Portfolio? Is Hong Kong Economic Times Holdings Limited (HKG:423) A Good Fit?

Today we'll take a closer look at Hong Kong Economic Times Holdings Limited (HKG:423) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

A high yield and a long history of paying dividends is an appealing combination for Hong Kong Economic Times Holdings. It would not be a surprise to discover that many investors buy it for the dividends. Some simple analysis can reduce the risk of holding Hong Kong Economic Times Holdings for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Hong Kong Economic Times Holdings!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Hong Kong Economic Times Holdings paid out 107% of its profit as dividends, over the trailing twelve month period. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Hong Kong Economic Times Holdings paid out a conservative 28% of its free cash flow as dividends last year. It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Hong Kong Economic Times Holdings fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

With a strong net cash balance, Hong Kong Economic Times Holdings investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Hong Kong Economic Times Holdings every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Hong Kong Economic Times Holdings has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was HK$0.1 in 2011, compared to HK$0.07 last year. The dividend has shrunk at around 5.2% a year during that period. Hong Kong Economic Times Holdings' dividend has been cut sharply at least once, so it hasn't fallen by 5.2% every year, but this is a decent approximation of the long term change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Hong Kong Economic Times Holdings' earnings per share have shrunk at 11% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Hong Kong Economic Times Holdings' earnings per share, which support the dividend, have been anything but stable.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're not keen on the fact that Hong Kong Economic Times Holdings paid out such a high percentage of its income, although its cashflow is in better shape. Earnings per share are down, and Hong Kong Economic Times Holdings' dividend has been cut at least once in the past, which is disappointing. In summary, Hong Kong Economic Times Holdings has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Hong Kong Economic Times Holdings (of which 1 makes us a bit uncomfortable!) you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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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