Techtronic Industries Company Limited (HKG:669) will increase its dividend on June 17 to HK$1.00. This brings the annual payout to 2.0% of the current share price, which is unfortunately less than what the industry is paying.
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. Techtronic Industries stock price is down 32% in the last 3 months, which is not ideal for investors and may explain a sharp increase in the dividend yield.
Check out our latest analysis for Techtronic Industries
Techtronic Industries does not earn enough to cover its payments
If predictable over a long period, even low dividend yields can be attractive. Techtronic Industries is fairly easily earning enough to cover the dividend, but is disappointed by weak cash flow. We think cash flow should take priority over earnings, so that’s certainly a concern for the dividend going forward.
Over the next year, EPS is expected to increase by 20.1%. However, if the dividend continues to grow along recent trends, it could start to put pressure on the balance sheet as the payout ratio becomes very high over the next year.
The company’s dividend history has been marked by instability, with at least 1 cut in the past 10 years. Since 2012, the dividend has increased from US$0.014 to US$0.26. This means that it has increased its distributions by 33% per year during this period. Dividends have grown rapidly over this period, but with cuts in the past, we’re not sure this stock will be a reliable source of income in the future.
The dividend should increase
Earnings per share growth could be a mitigating factor given past dividend fluctuations. It is encouraging to see that Techtronic Industries has increased its earnings per share by 22% per year over the past five years. A low payout ratio gives the company great flexibility, and the growth in earnings also allows it to increase the dividend very easily.
Our thoughts on the Techtronic Industries dividend
In summary, while it’s always good to see the dividend increase, we don’t think Techtronic Industries’ payouts are strong. While Techtronic Industries earns enough to cover payments, cash flow is lacking. We would be a bit cautious to rely on this stock primarily for dividend income.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. At the same time, there are other factors that our readers should be aware of before investing capital in a stock. Example: we have identified 3 warning signs for Techtronic Industries (1 of which makes us a little uncomfortable!) that you should know. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
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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.