EEKA Fashion Holdings (HKG:3709) has announced that it will increase its dividend to HK$0.48

EEKA Fashion Holdings Limited (HKG:3709) will increase its dividend on June 30 to HK$0.48. This brings the annual payout to 3.9% of the current share price, which is within the industry average.

Check out our latest analysis for EEKA Fashion Holdings

EEKA Fashion Holdings payment has strong revenue coverage

We like to see a healthy dividend yield, but that only helps us if the payout can continue. Prior to this announcement, EEKA Fashion Holdings’ dividend was comfortably covered by both cash flow and earnings. This means that a large portion of his income is kept to grow the business.

Looking ahead, earnings per share are expected to grow 17.8% over the next year. If the dividend continues on this path, the payout ratio could be 57% by next year, which we believe can be quite sustainable in the future.

SEHK:3709 Historic dividend June 5, 2022

EEKA Fashion Holdings’ dividend lacks consistency

It is heartening to see that EEKA Fashion Holdings has been paying a dividend for a number of years now, but has been cut at least once during that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has increased from CN¥0.08 to CN¥0.39. This means that it increased its distributions by 25% per year during this period. EEKA Fashion Holdings has increased its distributions at a rapid pace despite cutting the dividend at least once in the past. Companies that have cut once have often cut again, so we would be cautious about buying these stocks just for the dividend income.

The dividend should increase

With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate dividend growth in the future. EEKA Fashion Holdings has impressed us by increasing EPS by 12% per year over the past five years. With earnings per share growing at an acceptable pace and a balanced payout policy, we believe the company is well positioned to grow earnings and dividends going forward.

We really like the dividend from EEKA Fashion Holdings

In summary, it is always positive to see the dividend increase, and we are particularly satisfied with its overall sustainability. The company is easily earning enough to cover its dividend payments and it’s good to see that income translate into cash flow. Considering all of this, it looks like a good dividend opportunity.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. However, there are other things for investors to consider when analyzing stock performance. For example, we chose 1 warning sign for EEKA Fashion Holdings that investors should consider. EEKA Fashion Holdings not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.

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.

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