Hung Ching Development & Construction's (TWSE:2527) Dividend Will Be Increased To NT$1.50

Hung Ching Development & Construction Co. Ltd (TWSE:2527) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of September to NT$1.50. Based on this payment, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.

Check out our latest analysis for Hung Ching Development & Construction

Hung Ching Development & Construction's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Hung Ching Development & Construction's earnings easily covered the dividend, but free cash flows were negative. 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.

If the trend of the last few years continues, EPS will grow by 6.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was NT$0.80, compared to the most recent full-year payment of NT$1.50. This means that it has been growing its distributions at 6.5% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

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. It's encouraging to see that Hung Ching Development & Construction has been growing its earnings per share at 6.2% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Hung Ching Development & Construction will make a great income stock. While Hung Ching Development & Construction is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Hung Ching Development & Construction has 4 warning signs (and 2 which are concerning) we think you should know about. Is Hung Ching Development & Construction not quite the opportunity you were looking for? Why not check out our selection of top 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.