Stock Analysis

Lonking Holdings (HKG:3339) Is Paying Out Less In Dividends Than Last Year

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SEHK:3339
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Lonking Holdings Limited's (HKG:3339) dividend is being reduced from last year's payment covering the same period to CN¥0.10 on the 28th of July. The yield is still above the industry average at 7.3%.

View our latest analysis for Lonking Holdings

Lonking Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Lonking Holdings' dividend made up quite a large proportion of earnings but only 24% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 132.8%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 54% which would be quite comfortable going to take the dividend forward.

historic-dividend
SEHK:3339 Historic Dividend May 29th 2023

Lonking Holdings' Dividend Has Lacked Consistency

Looking back, Lonking Holdings' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2014, the annual payment back then was CN¥0.0512, compared to the most recent full-year payment of CN¥0.0874. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Lonking Holdings might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Lonking Holdings' earnings per share has shrunk at 17% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs for Lonking Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.