Tan Chong International (HKG:693) Has Announced That It Will Be Increasing Its Dividend To HK$0.055

Tan Chong International Limited (HKG:693) will increase its dividend on the 26th of June to HK$0.055, which is 22% higher than last year's payment from the same period of HK$0.045. This will take the dividend yield to an attractive 6.8%, providing a nice boost to shareholder returns.

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Tan Chong International's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Tan Chong International was paying only paying out a fraction of earnings, but the payment was a massive 111% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 17.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Tan Chong International

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.105 in 2015 to the most recent total annual payment of HK$0.075. Doing the maths, this is a decline of about 3.3% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

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. Tan Chong International has seen EPS rising for the last five years, at 18% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Tan Chong International's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Tan Chong International's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Tan Chong International (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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