Stock Analysis

Tan Chong International (HKG:693) Is Increasing Its Dividend To HK$0.075

SEHK:693
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Tan Chong International Limited's (HKG:693) dividend will be increasing from last year's payment of the same period to HK$0.075 on 21st of June. This will take the annual payment to 6.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Tan Chong International

Tan Chong International's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Tan Chong International was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 3.6% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 47%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
SEHK:693 Historic Dividend March 30th 2023

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was HK$0.09 in 2013, and the most recent fiscal year payment was HK$0.10. This works out to be a compound annual growth rate (CAGR) of approximately 1.1% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's not great to see that Tan Chong International's earnings per share has fallen at approximately 3.6% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

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. 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 don't think Tan Chong International is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Tan Chong International has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Tan Chong International 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.