New Hope Service Holdings (HKG:3658) Has Announced That It Will Be Increasing Its Dividend To CN¥0.11

New Hope Service Holdings Limited (HKG:3658) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of December to CN¥0.11. This takes the dividend yield to 8.5%, which shareholders will be pleased with.

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New Hope Service Holdings' Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, New Hope Service Holdings was paying only paying out a fraction of earnings, but the payment was a massive 110% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 11.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for New Hope Service Holdings

New Hope Service Holdings' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2022, the annual payment back then was CN¥0.071, compared to the most recent full-year payment of CN¥0.159. This works out to be a compound annual growth rate (CAGR) of approximately 31% 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that New Hope Service Holdings has grown earnings per share at 15% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On New Hope Service Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think New Hope Service Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for New Hope Service Holdings that investors should take into consideration. 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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