KML Technology Group (HKG:8065) Is Reducing Its Dividend To HK$0.02

KML Technology Group Limited (HKG:8065) is reducing its dividend from last year's comparable payment to HK$0.02 on the 26th of August. The dividend yield of 8.5% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for KML Technology Group

KML Technology Group Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

If the company can't turn things around, EPS could fall by 15.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 120%, which could put the dividend in jeopardy if the company's earnings don't improve.

KML Technology Group's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The payments haven't really changed that much since 2 years ago. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. KML Technology Group's EPS has fallen by approximately 15% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

We're Not Big Fans Of KML Technology Group's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

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 3 warning signs for KML Technology Group (of which 1 shouldn't be ignored!) you should know about. Is KML Technology Group 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.