Wecon Holdings (HKG:1793) Has Announced That Its Dividend Will Be Reduced To HK$0.012

Wecon Holdings Limited (HKG:1793) is reducing its dividend to HK$0.012 on the 20th of Septemberwhich is 37% less than last year. This means the annual payment is 5.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Wecon Holdings

Wecon Holdings' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Wecon Holdings was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

EPS is set to fall by 29.7% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 45%, which is more comfortable than the current payout ratio.

Wecon Holdings Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2019, the dividend has gone from HK$0.014 to HK$0.019. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Wecon Holdings has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Wecon Holdings' EPS has fallen by approximately 30% per year during the past three years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Wecon Holdings' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Wecon Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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