Asia Financial Holdings (HKG:662) Will Pay A Larger Dividend Than Last Year At HK$0.09

Asia Financial Holdings Limited (HKG:662) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of June to HK$0.09. This takes the annual payment to 4.5% of the current stock price, which is about average for the industry.

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Asia Financial Holdings' Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Asia Financial Holdings was paying only paying out a fraction of earnings, but the payment was a massive 139% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 10.6% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

See our latest analysis for Asia Financial Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was HK$0.075, compared to the most recent full-year payment of HK$0.18. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Asia Financial Holdings has been growing its earnings per share at 11% a year over the past five years. Asia Financial Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Asia Financial Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Asia Financial Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Asia Financial Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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