Changhong Jiahua Holdings (HKG:3991) Has Affirmed Its Dividend Of HK$0.05

Changhong Jiahua Holdings Limited (HKG:3991) has announced that it will pay a dividend of HK$0.05 per share on the 24th of June. This means the annual payment is 7.7% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Changhong Jiahua Holdings

Changhong Jiahua Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Changhong Jiahua Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 13.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

Changhong Jiahua Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The first annual payment during the last 7 years was HK$0.04 in 2015, and the most recent fiscal year payment was HK$0.05. This means that it has been growing its distributions at 3.2% 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Changhong Jiahua Holdings has seen EPS rising for the last five years, at 13% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Changhong Jiahua Holdings Looks Like A Great Dividend Stock

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 picked out 1 warning sign for Changhong Jiahua Holdings that investors should know about before committing capital to this stock. Is Changhong Jiahua Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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