E&E - Dividend Analysis, FY2000 - FY2007

I like this stock because of its good dividend. Its average dividend yield over the recent years is a decent 8.9%.

Since the Group started paying dividends in 1995, its dividend payout ranged between 34-55% until FY2002. Excluding the outliers, the dividend payout has increased to the 60-70% region in the recent years. It is therefore, reasonable to assume that the management will keep its dividend payout about two-third of its profit.

Gross dividend has been increasing over the years except for FY2002. During that year, gross dividend declined only 23.3% compared to 53.8% drop in net profit. As the Group aims to maintain a "consistent dividend policy", dividend payout surge during years in which earnings growth were lower (FY2002, FY2003 and FY2007).

In the Chairman Statement of its 2007 Annual Report, the dividend was recommended after "having considered the Group's continued ability on free cash flow generation and their (the Directors') confidence in the corporate performance going forward." This is a heartening statement, in my opinion.

Someone has suggested that the high dividend may be attributed to the needs of E&E' s parent company. I am not sure of Kingboard's financial health and will have to find out. I also do not know under the current corporate structure, how E&E will be affected should the financial health of its parent company deteriorates.

It is noted that E&E's dividends were fully supported by its strong operating cashflow. Since its listing in 1994, the Group has generated positive net cashflow from operating activities every year. I believe the consistent dividend policy has also helped the management in being prudent with its uses of cash.

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Updated on 26 Nov 2008:

Health Check - Kingboard Chemical Holdings

A check with the latest Interim Report 2008 of Kingboard Chemical Holdings shows that its profit attributable to equity holders of the Company (excludes exceptional item) rose 35% to HK$1.76b for the 6 months ended 30 June 2008.

In addition, its cash holding stood at HK$5.4b against total debt of HK$11.3b, of which HK$2.9b is due within 1 year. Current ratio was about 1.56, net gearing about 29.2% and interest coverage ratio at 13.8 times. Net cash from operating activities for the six months totaled to HK$1.0b.