Henderson Investment's (HKG:97) Dividend Will Be HK$0.01

Henderson Investment Limited (HKG:97) has announced that it will pay a dividend of HK$0.01 per share on the 19th of June. This means the annual payment is 7.3% of the current stock price, which is above the average for the industry.

See our latest analysis for Henderson Investment

Henderson Investment Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 1,220% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 27%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to fall by 46.2% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 1,958%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from HK$0.04 total annually to HK$0.02. Doing the maths, this is a decline of about 6.7% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings per share has been sinking by 46% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. For example, we've identified 3 warning signs for Henderson Investment (1 shouldn't be ignored!) that you should be aware of before investing. 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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