CK Asset Holdings (HKG:1113) Has Announced A Dividend Of HK$1.62

The board of CK Asset Holdings Limited (HKG:1113) has announced that it will pay a dividend of HK$1.62 per share on the 13th of June. Despite the cut, the dividend yield of 6.2% will still be comparable to other companies in the industry.

View our latest analysis for CK Asset Holdings

CK Asset Holdings' Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, CK Asset Holdings' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 11.2%. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

CK Asset Holdings' Dividend Has Lacked Consistency

CK Asset Holdings has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was HK$0.70, compared to the most recent full-year payment of HK$2.05. This works out to be a compound annual growth rate (CAGR) of approximately 13% 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.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though CK Asset Holdings' EPS has declined at around 15% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 2 warning signs for CK Asset Holdings that you should be aware of before investing. Is CK Asset Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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