Stock Analysis

Tan Chong International's (HKG:693) Upcoming Dividend Will Be Larger Than Last Year's

SEHK:693
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Tan Chong International Limited's (HKG:693) periodic dividend will be increasing on the 26th of September to HK$0.03, with investors receiving 20% more than last year's HK$0.025. This will take the annual payment to 5.8% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Tan Chong International

Tan Chong International's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Tan Chong International was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 4.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 52%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
SEHK:693 Historic Dividend August 25th 2023

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of HK$0.09 in 2013 to the most recent total annual payment of HK$0.10. This means that it has been growing its distributions at 1.1% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Achieve

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. Over the past five years, it looks as though Tan Chong International's EPS has declined at around 4.4% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Tan Chong International's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Tan Chong International you should be aware of, and 2 of them shouldn't be ignored. 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.