Great Eagle Holdings (HKG:41) Has Announced That It Will Be Increasing Its Dividend To HK$0.37

The board of Great Eagle Holdings Limited (HKG:41) has announced that it will be increasing its dividend by 12% on the 13th of October to HK$0.37, up from last year's comparable payment of HK$0.33. Based on this payment, the dividend yield for the company will be 5.9%, which is fairly typical for the industry.

View our latest analysis for Great Eagle Holdings

Great Eagle Holdings Is Paying Out More Than It Is Earning

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Great Eagle Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to fall by 54.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 853%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was HK$0.66, compared to the most recent full-year payment of HK$0.83. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. 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.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 55% over the last five years. 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.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Great Eagle Holdings you should be aware of, and 1 of them doesn't sit too well with us. Is Great Eagle Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.