Digital China Holdings' (HKG:861) Shareholders Will Receive A Bigger Dividend Than Last Year

Digital China Holdings Limited (HKG:861) has announced that it will be increasing its dividend on the 25th of July to HK$0.13. This will take the annual payment from 4.1% to 4.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Digital China Holdings

Digital China Holdings' 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, Digital China Holdings was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 66.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was HK$0.32 in 2012, and the most recent fiscal year payment was HK$0.15. The dividend has shrunk at around 7.4% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see Digital China Holdings has been growing its earnings per share at 67% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Digital China Holdings Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. For instance, we've picked out 3 warning signs for Digital China Holdings that investors should take into consideration. Is Digital China Holdings 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.