EEKA Fashion Holdings' (HKG:3709) Dividend Will Be Increased To CN¥0.70

EEKA Fashion Holdings Limited (HKG:3709) will increase its dividend from last year's comparable payment on the 28th of June to CN¥0.70. This takes the annual payment to 6.2% of the current stock price, which is about average for the industry.

View our latest analysis for EEKA Fashion Holdings

EEKA Fashion Holdings' Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by EEKA Fashion Holdings' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 39.9% over the next year. If the dividend continues on this path, the payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.

EEKA Fashion Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was CN¥0.0799 in 2015, and the most recent fiscal year payment was CN¥0.646. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. EEKA Fashion Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. EEKA Fashion Holdings has impressed us by growing EPS at 17% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

EEKA Fashion Holdings Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for EEKA Fashion Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.