E-Star Commercial Management's (HKG:6668) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of E-Star Commercial Management Company Limited (HKG:6668) has announced that it will be paying its dividend of CN¥0.13 on the 10th of July, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 9.9%, providing a nice boost to shareholder returns.

See our latest analysis for E-Star Commercial Management

E-Star Commercial Management's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, E-Star Commercial Management's dividend made up quite a large proportion of earnings but only of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 40.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which is in the range that makes us comfortable with the sustainability of the dividend.

E-Star Commercial Management's 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. The annual payment during the last 3 years was CN¥0.0363 in 2021, and the most recent fiscal year payment was CN¥0.12. This implies that the company grew its distributions at a yearly rate of about 49% over that duration. 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 May Be Hard To Achieve

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. However, E-Star Commercial Management has only grown its earnings per share at 4.8% per annum over the past five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Our Thoughts On E-Star Commercial Management's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for E-Star Commercial Management that investors should know about before committing capital to this stock. 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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