Zengame Technology Holding Limited (HKG:2660) is reducing its dividend from last year's comparable payment to CN¥0.15 on the 9th of July. However, the dividend yield of 6.5% is still a decent boost to shareholder returns.

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Zengame Technology Holding's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Zengame Technology Holding was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 20.6% if recent trends continue. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Zengame Technology Holding

Zengame Technology Holding's Dividend Has Lacked Consistency

Looking back, Zengame Technology Holding's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The annual payment during the last 6 years was CN¥0.0895 in 2019, and the most recent fiscal year payment was CN¥0.14. This implies that the company grew its distributions at a yearly rate of about 7.7% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Zengame Technology Holding has been growing its earnings per share at 21% 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.

We Really Like Zengame Technology Holding's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Zengame Technology Holding has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Zengame Technology Holding that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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