Zhong Ao Home Group's (HKG:1538) Shareholders Will Receive A Smaller Dividend Than Last Year

Zhong Ao Home Group Limited (HKG:1538) has announced it will be reducing its dividend payable on the 7th of July to HK$0.025. This means that the dividend yield is 4.6%, which is a bit low when comparing to other companies in the industry.

View our latest analysis for Zhong Ao Home Group

Zhong Ao Home Group's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Zhong Ao Home Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 20.1% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 17%, which is in the range that makes us comfortable with the sustainability of the dividend.

Zhong Ao Home Group's Dividend Has Lacked Consistency

It's comforting to see that Zhong Ao Home Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the first annual payment was CN¥0.021, compared to the most recent full-year payment of CN¥0.024. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% 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.

The Dividend Looks Likely To Grow

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. It's encouraging to see Zhong Ao Home Group has been growing its earnings per share at 20% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Zhong Ao Home Group Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Zhong Ao Home Group has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. For example, we've picked out 2 warning signs for Zhong Ao Home Group that investors should know about before committing capital to this stock. Is Zhong Ao Home Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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