Cheuk Nang (Holdings)'s (HKG:131) Dividend Will Be Reduced To HK$0.03

Cheuk Nang (Holdings) Limited's (HKG:131) dividend is being reduced to HK$0.03 on the 13th of December. This means that the annual payment is 1.8% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Cheuk Nang (Holdings)

Cheuk Nang (Holdings)'s Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, Cheuk Nang (Holdings)'s earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Unless the company can turn things around, EPS could fall by 18.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 26%, which is definitely feasible to continue.

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. The first annual payment during the last 10 years was HK$0.08 in 2011, and the most recent fiscal year payment was HK$0.05. Doing the maths, this is a decline of about 4.6% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though Cheuk Nang (Holdings)'s EPS has declined at around 19% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Our Thoughts On Cheuk Nang (Holdings)'s Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Cheuk Nang (Holdings) (1 is a bit unpleasant!) 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 performing dividend stock.

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.

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