MEGAIN Holding (Cayman)'s (HKG:6939) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of MEGAIN Holding (Cayman) Co., Ltd. (HKG:6939) has announced that it will be increasing its dividend on the 30th of June to HK$0.03. This takes the dividend yield from 2.6% to 2.7%, which shareholders will be pleased with.

View our latest analysis for MEGAIN Holding (Cayman)

MEGAIN Holding (Cayman)'s Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. MEGAIN Holding (Cayman) is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Unless the company can turn things around, EPS could fall by 15.5% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 58%, which is definitely feasible to continue.

MEGAIN Holding (Cayman) Doesn't Have A Long Payment History

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the last 12 months, earnings are down by 16%. While this is not ideal, one year is a short time in business, and we wouldn't want to get too hung up on this. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

MEGAIN Holding (Cayman)'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. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for MEGAIN Holding (Cayman) (2 don't sit too well with us!) that you should be aware of before investing. Is MEGAIN Holding (Cayman) 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.