Cathay Real Estate DevelopmentLtd (TWSE:2501) Has Announced That It Will Be Increasing Its Dividend To NT$1.00

Cathay Real Estate Development Co.,Ltd.'s (TWSE:2501) dividend will be increasing from last year's payment of the same period to NT$1.00 on 12th of August. Based on this payment, the dividend yield for the company will be 3.2%, which is fairly typical for the industry.

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 Cathay Real Estate DevelopmentLtd's stock price has increased by 43% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Cathay Real Estate DevelopmentLtd

Cathay Real Estate DevelopmentLtd's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Cathay Real Estate DevelopmentLtd was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 77% indicates it is more focused on returning cash to shareholders than growing the business.

EPS is set to fall by 4.6% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 44%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was NT$1.43, compared to the most recent full-year payment of NT$1.00. The dividend has shrunk at around 3.5% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, Cathay Real Estate DevelopmentLtd's earnings per share has shrunk at approximately 4.6% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Cathay Real Estate DevelopmentLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think Cathay Real Estate DevelopmentLtd will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Cathay Real Estate DevelopmentLtd has been making. Overall, we don't think this company has the makings of a good 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Cathay Real Estate DevelopmentLtd (of which 3 are concerning!) 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.

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