Lonking Holdings (HKG:3339) Has Announced That Its Dividend Will Be Reduced To HK$0.22

Lonking Holdings Limited (HKG:3339) has announced it will be reducing its dividend payable on the 29th of July to HK$0.22. However, the dividend yield of 9.9% is still a decent boost to shareholder returns.

Check out our latest analysis for Lonking Holdings

Lonking 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, Lonking 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.

EPS is set to fall by 11.9% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 111%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from CN¥0.12 in 2012 to the most recent annual payment of CN¥0.18. This means that it has been growing its distributions at 3.8% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Lonking Holdings has grown earnings per share at 23% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

We Really Like Lonking Holdings' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Lonking Holdings does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Lonking Holdings you should be aware of, and 1 of them doesn't sit too well with us. Is Lonking Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.