Great Eagle Holdings (HKG:41) Has Announced A Dividend Of HK$1.00

The board of Great Eagle Holdings Limited (HKG:41) has announced that it will pay a dividend of HK$1.00 per share on the 21st of June. The dividend yield will be 6.9% based on this payment which is still above the industry average.

View our latest analysis for Great Eagle Holdings

Great Eagle Holdings' Distributions May Be Difficult To Sustain

A big dividend yield for a few years doesn't mean much if it can't be sustained. While Great Eagle Holdings is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Over the next year, EPS might fall by 53.6% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from HK$0.57 in 2012 to the most recent annual payment of HK$1.33. This means that it has been growing its distributions at 8.8% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Great Eagle Holdings' earnings per share has shrunk at 54% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Great Eagle Holdings' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Great Eagle Holdings' payments, as there could be some issues with sustaining them into the future. 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 probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Great Eagle Holdings you should be aware of, and 1 of them is a bit unpleasant. Is Great Eagle Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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