Tat Hong Equipment Service (HKG:2153) Has Announced That Its Dividend Will Be Reduced To CN¥0.016

Tat Hong Equipment Service Co., Ltd.'s (HKG:2153) dividend is being reduced from last year's payment covering the same period to CN¥0.016 on the 4th of November. This means that the annual payment is 1.5% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Tat Hong Equipment Service

Tat Hong Equipment Service Is Paying Out More Than It Is Earning

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Tat Hong Equipment Service's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 6.9% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 121%, which is definitely a bit high to be sustainable going forward.

Tat Hong Equipment Service Doesn't Have A Long Payment History

It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Is Doubtful

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Tat Hong Equipment Service's EPS has declined at around 6.9% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

The Dividend Could Prove To Be Unreliable

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. While Tat Hong Equipment Service is earning enough to cover the payments, the cash flows are lacking. We don't think Tat Hong Equipment Service is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Tat Hong Equipment Service (of which 1 is a bit unpleasant!) you should know about. Is Tat Hong Equipment Service not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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