Zhong Ao Home Group (HKG:1538) Is Due To Pay A Dividend Of CN¥0.025

The board of Zhong Ao Home Group Limited (HKG:1538) has announced that it will pay a dividend of CN¥0.025 per share on the 10th of July. This means the annual payment is 8.0% of the current stock price, which is above the average for the industry.

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Zhong Ao Home Group's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. 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.

Unless the company can turn things around, EPS could fall by 4.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 24%, which is definitely feasible to continue.

Check out our latest analysis for Zhong Ao Home Group

Zhong Ao Home Group's Dividend Has Lacked Consistency

Looking back, Zhong Ao Home Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from CN¥0.021 total annually to CN¥0.0233. This works out to be a compound annual growth rate (CAGR) of approximately 1.2% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

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

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. In the last five years, Zhong Ao Home Group's earnings per share has shrunk at approximately 4.8% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Zhong Ao Home Group's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 example, we've identified 3 warning signs for Zhong Ao Home Group (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.