Chow Tai Fook Jewellery Group's (HKG:1929) Upcoming Dividend Will Be Larger Than Last Year's

The board of Chow Tai Fook Jewellery Group Limited (HKG:1929) has announced that it will be paying its dividend of HK$0.32 on the 20th of August, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 3.9%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Chow Tai Fook Jewellery Group's stock price has increased by 44% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Chow Tai Fook Jewellery Group's Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. The last payment made up 88% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 64.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 58% which would be quite comfortable going to take the dividend forward.

View our latest analysis for Chow Tai Fook Jewellery Group

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from HK$0.28 total annually to HK$0.52. This works out to be a compound annual growth rate (CAGR) of approximately 6.4% a year 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 Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Chow Tai Fook Jewellery Group has impressed us by growing EPS at 16% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Chow Tai Fook Jewellery Group that investors should know about before committing capital to this stock. Is Chow Tai Fook Jewellery Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.