Cathay Real Estate DevelopmentLtd (TWSE:2501) Will Pay A Larger Dividend Than Last Year At NT$1.00

Cathay Real Estate Development Co.,Ltd. (TWSE:2501) will increase its dividend from last year's comparable payment on the 12th of August to NT$1.00. Based on this payment, the dividend yield for the company will be 3.0%, 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 59% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Cathay Real Estate DevelopmentLtd

Cathay Real Estate DevelopmentLtd's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend was quite comfortably covered by Cathay Real Estate DevelopmentLtd's earnings, but it was a bit tighter on the cash flow front. 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 the path it has been on recently, we estimate the payout ratio could be 44%, which is definitely feasible to continue.

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 2014, the dividend has gone from NT$1.43 total annually to NT$1.00. The dividend has shrunk at around 3.5% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Cathay Real Estate DevelopmentLtd May Find It Hard To Grow The Dividend

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. It's not great to see that Cathay Real Estate DevelopmentLtd's earnings per share has fallen at approximately 4.6% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

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. While Cathay Real Estate DevelopmentLtd is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 4 warning signs for Cathay Real Estate DevelopmentLtd you should be aware of, and 3 of them are a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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