Wecon Holdings (HKG:1793) Is Paying Out A Dividend Of HK$0.012

Wecon Holdings Limited's (HKG:1793) investors are due to receive a payment of HK$0.012 per share on 2nd of September. The dividend yield will be 7.7% based on this payment which is still above the industry average.

View our latest analysis for Wecon Holdings

Wecon Holdings Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was higher than its profits, and made up 88% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

If the company can't turn things around, EPS could fall by 34.1% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 224%, which is definitely a bit high to be sustainable going forward.

Wecon Holdings' Dividend Has Lacked Consistency

It's comforting to see that Wecon Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2019, the annual payment back then was HK$0.014, compared to the most recent full-year payment of HK$0.012. Doing the maths, this is a decline of about 3.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

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 per share has been sinking by 34% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Wecon Holdings has 3 warning signs (and 2 which make us uncomfortable) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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