Zhong Ao Home Group (HKG:1538) Has Affirmed Its Dividend Of CN¥0.025

Zhong Ao Home Group Limited (HKG:1538) has announced that it will pay a dividend of CN¥0.025 per share on the 5th of July. This payment means that the dividend yield will be 6.6%, which is around the industry average.

View our latest analysis for Zhong Ao Home Group

Zhong Ao Home Group's 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. However, prior to this announcement, Zhong Ao Home Group's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 4.6% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 27%, which is definitely feasible to continue.

Zhong Ao Home Group's Dividend Has Lacked Consistency

Zhong Ao Home Group has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was CN¥0.021, compared to the most recent full-year payment of CN¥0.0231. This implies that the company grew its distributions at a yearly rate of about 1.2% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Zhong Ao Home Group May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Zhong Ao Home Group's earnings per share has shrunk at approximately 4.6% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Zhong Ao Home Group (1 is concerning!) that you should be aware of before investing. 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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