Wecon Holdings (HKG:1793) Is Paying Out Less In Dividends Than Last Year

Wecon Holdings Limited (HKG:1793) is reducing its dividend to HK$0.012 on the 20th of September. However, the dividend yield of 5.3% still remains in a typical range for the industry.

View our latest analysis for Wecon Holdings

Wecon Holdings' Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Wecon Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Unless the company can turn things around, EPS could fall by 29.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 71%, which is definitely feasible to continue.

Wecon Holdings' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from HK$0.014 in 2019 to the most recent annual payment of HK$0.012. Doing the maths, this is a decline of about 7.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Wecon Holdings' EPS has fallen by approximately 30% per year during the past three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Our Thoughts On Wecon Holdings' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 4 warning signs for Wecon Holdings that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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