Jerash Holdings (US), Inc. (NASDAQ:JRSH) has announced that it will pay a dividend of US$0.05 per share on the 22nd of February. This makes the dividend yield 3.3%, which will augment investor returns quite nicely.
Jerash Holdings (US)'s Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Jerash Holdings (US)'s dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Looking forward, earnings per share is forecast to rise by 18.6% over the next year. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.
Jerash Holdings (US) Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The most recent annual payment of US$0.20 is about the same as the first annual payment 3 years ago. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
Dividend Growth Is Doubtful
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. It's not great to see that Jerash Holdings (US)'s earnings per share has fallen at approximately 8.9% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Jerash Holdings (US)'s payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Jerash Holdings (US) is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 4 warning signs for Jerash Holdings (US) that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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