Lung Kee (Bermuda) Holdings' (HKG:255) Dividend Will Be Reduced To HK$0.06

Lung Kee (Bermuda) Holdings Limited (HKG:255) has announced that on 19th of June, it will be paying a dividend ofHK$0.06, which a reduction from last year's comparable dividend. The dividend yield of 5.3% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Lung Kee (Bermuda) Holdings

Lung Kee (Bermuda) Holdings Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 479% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

If the company can't turn things around, EPS could fall by 43.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 880%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The most recent annual payment of HK$0.12 is about the same as the annual payment 10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Lung Kee (Bermuda) Holdings' earnings per share has shrunk at 44% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Lung Kee (Bermuda) Holdings' Dividend Doesn't Look Sustainable

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. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Lung Kee (Bermuda) Holdings (of which 1 can't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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