Changhong Jiahua Holdings (HKG:3991) Will Pay A 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 21st of June. The dividend yield will be 9.8% based on this payment which is still above the industry average.

See our latest analysis for Changhong Jiahua Holdings

Changhong Jiahua Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Changhong Jiahua Holdings' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 5.9% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Changhong Jiahua Holdings' Dividend Has Lacked Consistency

Changhong Jiahua Holdings has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was HK$0.04, compared to the most recent full-year payment of HK$0.05. This works out to be a compound annual growth rate (CAGR) of approximately 2.5% a year 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.

Changhong Jiahua Holdings Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Changhong Jiahua Holdings has grown earnings per share at 5.9% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Changhong Jiahua Holdings' prospects of growing its dividend payments in the future.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Changhong Jiahua Holdings has 2 warning signs (and 1 which makes us a bit uncomfortable) we think 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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