EEKA Fashion Holdings' (HKG:3709) Shareholders Will Receive A Bigger Dividend Than Last Year

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 5.2% of the current stock price, which is about average for the industry.

Check out 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. Prior to this announcement, EEKA Fashion Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 41.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which is in the range that makes us comfortable with the sustainability of the dividend.

EEKA Fashion Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of CN¥0.0799 in 2015 to the most recent total annual payment of CN¥0.645. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. EEKA Fashion Holdings has seen EPS rising for the last five years, at 17% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

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 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. For instance, we've picked out 1 warning sign for EEKA Fashion Holdings that investors should take into consideration. 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.