The advice of Hong Kong Ferry (Holdings) Company Limited (HKG: 50) announced that it would pay a dividend on June 17, with investors receiving HK$0.15 per share. Including this payment, the dividend yield on the stock will be 3.4%, representing a modest increase in shareholder return.
While the dividend yield is important for income investors, it’s also important to take into account any large changes in share price, as this will generally outweigh any gains from distributions. Investors will be pleased to see that the share price of Hong Kong Ferry (Holdings) has increased by 34% in the last 3 months, which is good for shareholders and may also explain a drop in dividend yield.
See our latest analysis for Hong Kong Ferry (Holdings)
Hong Kong Ferry (Holdings) earnings easily cover distributions
If predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, the Hong Kong Ferry (Holdings) dividend was a very large portion of earnings and perhaps more worrying was that it was 415% of cash flow. The payment of such a high proportion of cash flow certainly exposes the company to reducing the dividend if cash flow were to decrease.
EPS is expected to fall 13.5% over the next 12 months if recent trends continue. Assuming the dividend continues on recent trends, we believe the payout ratio could be as high as 84%, which is certainly higher.
The company’s dividend history has been marked by instability, with at least 1 cut in the past 10 years. The first annual payment in the past 10 years was HK$0.36 in 2012, and the most recent year’s payment was HK$0.25. This equates to a decline of about 3.6% per year over this period. Generally, we don’t like to see a dividend that has diminished over time, as this can degrade shareholder returns and signal that the company may be in trouble.
Dividend growth potential is fragile
Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. Earnings per share have fallen 14% over the past five years. A sharp drop in earnings per share is not great from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall enough.
Dividend could prove unreliable
Overall, we don’t think this company is generating a great dividend, even though the dividend hasn’t been cut this year. Payouts are a bit high to be considered sustainable, and the track record isn’t the best. We would be a bit cautious to rely on this stock primarily for dividend income.
Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. However, there are other things for investors to consider when analyzing stock performance. To this end, Hong Kong Ferry (Holdings) has 4 warning signs (and 1 which is a little obnoxious) that we think you should know about. Hong Kong Ferry (Holdings) not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.