Is Keck Seng Investments (Hong Kong) Limited (HKG:184) An Attractive Dividend Stock?
Today we'll take a closer look at Keck Seng Investments (Hong Kong) Limited (HKG:184) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
In this case, Keck Seng Investments (Hong Kong) likely looks attractive to investors, given its 3.6% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. Some simple research can reduce the risk of buying Keck Seng Investments (Hong Kong) for its dividend - read on to learn more.
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Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 30% of Keck Seng Investments (Hong Kong)'s profits were paid out as dividends in the last 12 months. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Keck Seng Investments (Hong Kong)'s cash payout ratio last year was 7.3%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
While the above analysis focuses on dividends relative to a company's earnings, we do note Keck Seng Investments (Hong Kong)'s strong net cash position, which will let it pay larger dividends for a time, should it choose.
We update our data on Keck Seng Investments (Hong Kong) every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Keck Seng Investments (Hong Kong)'s dividend payments. This dividend has been unstable, which we define as having fallen by at least 20% one or more times over this time. During the past ten-year period, the first annual payment was HK$0.17 in 2009, compared to HK$0.16 last year. The dividend has shrunk at a rate of less than 1% a year over this period.
A shrinking dividend over a ten-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Keck Seng Investments (Hong Kong)'s EPS have declined at around 11% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Keck Seng Investments (Hong Kong)'s earnings per share, which support the dividend, have been anything but stable.
Conclusion
To summarise, shareholders should always check that Keck Seng Investments (Hong Kong)'s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Keck Seng Investments (Hong Kong) has low and conservative payout ratios. Earnings per share are down, and Keck Seng Investments (Hong Kong)'s dividend has been cut at least once in the past, which is disappointing. Ultimately, Keck Seng Investments (Hong Kong) comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.
You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Keck Seng Investments (Hong Kong) stock.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
