FSE Lifestyle Services (HKG:331) Is Paying Out Less In Dividends Than Last Year

FSE Lifestyle Services Limited's (HKG:331) dividend is being reduced by 5.8% to HK$0.211 per share on 28th of March, in comparison to last year's comparable payment of HK$0.224. This means the annual payment is 7.6% of the current stock price, which is above the average for the industry.

Check out our latest analysis for FSE Lifestyle Services

FSE Lifestyle Services' Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, FSE Lifestyle Services was paying a whopping 172% as a dividend, but this only made up 40% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 29.7%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

FSE Lifestyle Services' Dividend Has Lacked Consistency

FSE Lifestyle Services has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the dividend has gone from HK$0.10 total annually to HK$0.438. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

FSE Lifestyle Services Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. FSE Lifestyle Services has seen EPS rising for the last five years, at 8.9% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On FSE Lifestyle Services' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While FSE Lifestyle Services is earning enough to cover the payments, the cash flows are lacking. We don't think FSE Lifestyle Services is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for FSE Lifestyle Services that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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