Hafary Holdings Limited's (SGX:5VS) investors are due to receive a payment of SGD0.0125 per share on 22nd of August. This means that the annual payment will be 5.7% of the current stock price, which is in line with the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Hafary Holdings' stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Hafary Holdings' Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Hafary Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 41.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Hafary Holdings

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of SGD0.013 in 2015 to the most recent total annual payment of SGD0.0275. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Hafary Holdings might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Hafary Holdings has been growing its earnings per share at 42% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Hafary Holdings Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Hafary Holdings (1 is concerning!) that you should be aware of before investing. Is Hafary Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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