Liu Chong Hing Investment (HKG:194) Has Announced That It Will Be Increasing Its Dividend To HK$0.28

Liu Chong Hing Investment Limited (HKG:194) has announced that it will be increasing its dividend on the 6th of June to HK$0.28. This takes the annual payment to 6.3% of the current stock price, which is about average for the industry.

View our latest analysis for Liu Chong Hing Investment

Liu Chong Hing Investment's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Liu Chong Hing Investment's dividend was only 41% of earnings, however it was paying out 115% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, EPS could fall by 1.4% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 42%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Liu Chong Hing Investment's Dividend Has Lacked Consistency

Liu Chong Hing Investment has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The first annual payment during the last 9 years was HK$0.30 in 2013, and the most recent fiscal year payment was HK$0.46. This means that it has been growing its distributions at 4.9% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Liu Chong Hing Investment May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Liu Chong Hing Investment's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Liu Chong Hing Investment's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Liu Chong Hing Investment will make a great income stock. While Liu Chong Hing Investment is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 3 warning signs for Liu Chong Hing Investment (of which 1 makes us a bit uncomfortable!) you should know about. Is Liu Chong Hing Investment not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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