The advice of Henderson Land Development Company Limited (HKG: 12) announced it would pay a dividend on June 21, with investors receiving HK $ 1.30 per share. Based on this payment, the dividend yield will be 4.8%, which is quite typical for the industry.
Check out our latest analysis for Henderson Land Development
Henderson Land Development payment provides strong revenue coverage
Strong dividend yields are great, but they only really help us if the payout is sustainable. At the time of the last dividend payment, Henderson Land Development was paying a very large portion of what it earned and 123% of the cash flow. Paying such a high proportion of cash flow certainly exposes the company to reducing the dividend if cash flow were to decline.
Next year is expected to see EPS increase by 36.8%. Assuming the dividend continues on the path it recently charted, our estimates show the payout ratio to be 72%, which puts it in a fairly comfortable range.
The company’s dividend history has been marked by instability, with at least one cut in the past 10 years. As of 2011, the first annual payment was $ 0.67, compared to the most recent $ 1.80 for a full year. This works out to a compound annual growth rate (CAGR) of around 10% per year during that time. It’s great to see strong growth in dividend payments, but the cuts are cause for concern as it may indicate that the payment policy is too ambitious.
The dividend has limited growth potential
Growth in earnings per share could be a mitigating factor considering past dividend fluctuations. Earnings per share have declined 14% over the past five years. Dividend payments are likely to come under some pressure unless EPS can get out of the dive it’s in. This is not bad news though, as earnings are expected to rise over the next 12 months – we would just be a little cautious until this becomes a long term trend.
Henderson Land Development dividend does not look sustainable
Overall, we don’t think this company is making a good dividend, even though the dividend hasn’t been reduced this year. We don’t think Henderson Land Development is a good stock to add to your portfolio if income is your goal.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an irregular policy. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. As an example, we have identified 2 warning signs for Henderson Land Development which you should be aware of before investing. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.
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