The board of Jerash Holdings (US), Inc. (NASDAQ:JRSH) has announced that it will pay a dividend on the 3rd of June, with investors receiving US$0.05 per share. The dividend yield will be 3.4% based on this payment which is still above the industry average.
Jerash Holdings (US)'s Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. 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 8.5% over the next year. If the dividend continues on this path, the payout ratio could be 26% 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 payments haven't really changed that much since 4 years ago. Jerash Holdings (US) hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
Dividend Growth May Be Hard To Come By
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. In the last five years, Jerash Holdings (US)'s earnings per share has shrunk at approximately 5.2% per annum. 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. 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.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 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 yield dividend stocks.
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