EEKA Fashion Holdings (HKG:3709) Is Increasing Its Dividend To HK$0.48

EEKA Fashion Holdings Limited (HKG:3709) will increase its dividend on the 30th of June to HK$0.48. This will take the annual payment from 4.0% to 4.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for EEKA Fashion Holdings

EEKA Fashion Holdings' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, EEKA Fashion Holdings was quite comfortably earning enough to cover the dividend. 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 17.8% over the next year. If the dividend continues on this path, the payout ratio could be 57% 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. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from CN¥0.08 to CN¥0.39. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that EEKA Fashion Holdings has grown earnings per share at 12% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

EEKA Fashion Holdings Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for EEKA Fashion Holdings that you should be aware of before investing. Is EEKA Fashion Holdings 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.