MEGAIN Holding (Cayman)'s (HKG:6939) Upcoming Dividend Will Be Larger Than Last Year's

MEGAIN Holding (Cayman) Co., Ltd. (HKG:6939) will increase its dividend on the 30th of June to CN¥0.0382, which is 29% higher than last year's payment from the same period of CN¥0.0296. This makes the dividend yield 3.8%, which is above the industry average.

See our latest analysis for MEGAIN Holding (Cayman)

MEGAIN Holding (Cayman)'s Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, MEGAIN Holding (Cayman)'s earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 7.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 62%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The annual payment during the last 2 years was CN¥0.0111 in 2021, and the most recent fiscal year payment was CN¥0.0346. This implies that the company grew its distributions at a yearly rate of about 77% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. It's not great to see that MEGAIN Holding (Cayman)'s earnings per share has fallen at approximately 7.7% per year over the past three years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

Overall, we always like to see the dividend being raised, but we don't think MEGAIN Holding (Cayman) will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for MEGAIN Holding (Cayman) (of which 1 shouldn't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.