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

Changhong Jiahua Holdings Limited's (HKG:3991) investors are due to receive a payment of HK$0.05 per share on 20th of June. The dividend yield will be 5.8% based on this payment which is still above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Changhong Jiahua Holdings' stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

We've discovered 3 warning signs about Changhong Jiahua Holdings. View them for free.

Changhong Jiahua Holdings' Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Changhong Jiahua Holdings was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 5.6% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Changhong Jiahua Holdings

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from HK$0.04 total annually to HK$0.05. This means that it has been growing its distributions at 2.3% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

We Could See Changhong Jiahua Holdings' Dividend Growing

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. We are encouraged to see that Changhong Jiahua Holdings has grown earnings per share at 5.6% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Changhong Jiahua Holdings' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Changhong Jiahua Holdings is earning enough to cover the payments, the cash flows are lacking. 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 Changhong Jiahua Holdings (of which 2 are a bit concerning!) you should know about. 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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