Are Dividend Investors Getting More Than They Bargained For With Hon Kwok Land Investment Company, Limited's (HKG:160) Dividend?

By
Simply Wall St
Published
May 06, 2021
SEHK:160
Source: Shutterstock

Could Hon Kwok Land Investment Company, Limited (HKG:160) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

A high yield and a long history of paying dividends is an appealing combination for Hon Kwok Land Investment Company. We'd guess that plenty of investors have purchased it for the income. Some simple research can reduce the risk of buying Hon Kwok Land Investment Company for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Hon Kwok Land Investment Company!

historic-dividend
SEHK:160 Historic Dividend May 7th 2021

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Although it reported a loss over the past 12 months, Hon Kwok Land Investment Company currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Hon Kwok Land Investment Company paid out 59% of its cash flow as dividends last year, which is within a reasonable range for the average corporation.

Remember, you can always get a snapshot of Hon Kwok Land Investment Company's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Hon Kwok Land Investment Company's dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. Its most recent annual dividend was HK$0.1 per share, effectively flat on its first payment 10 years ago.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Hon Kwok Land Investment Company's earnings per share have shrunk at 17% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that Hon Kwok Land Investment Company's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. It's not great to see earnings per share shrinking. The dividends have been relatively consistent, but we wonder for how much longer this will be true. In summary, Hon Kwok Land Investment Company has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Hon Kwok Land Investment Company (2 are concerning!) that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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