Precious Dragon Technology Holdings Limited (HKG:1861) will increase its dividend on the 28th of October to HK$0.0324, which is 128% higher than last year's payment from the same period of HK$0.0142. Despite this raise, the dividend yield of 2.0% is only a modest boost to shareholder returns.

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 Precious Dragon Technology Holdings' stock price has increased by 71% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Precious Dragon Technology Holdings' Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, Precious Dragon Technology Holdings' earnings easily cover the dividend. 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 4.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Precious Dragon Technology Holdings

Precious Dragon Technology Holdings' Dividend Has Lacked Consistency

It's comforting to see that Precious Dragon Technology Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the dividend has gone from HK$0.028 total annually to HK$0.0361. This works out to be a compound annual growth rate (CAGR) of approximately 4.3% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Precious Dragon Technology Holdings May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 4.8% a year for the past five years, which isn't massive but still better than seeing them shrink. If Precious Dragon Technology Holdings is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Precious Dragon Technology 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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