King's Flair International (Holdings) (HKG:6822) Has Announced That Its Dividend Will Be Reduced To HK$0.03

King's Flair International (Holdings) Limited (HKG:6822) has announced that on 3rd of July, it will be paying a dividend ofHK$0.03, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 4.1%.

View our latest analysis for King's Flair International (Holdings)

King's Flair International (Holdings) Is Paying Out More Than It Is Earning

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, King's Flair International (Holdings)'s dividend made up quite a large proportion of earnings but only 34% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to fall by 30.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 120%, which could put the dividend under pressure if earnings don't start to improve.

King's Flair International (Holdings)'s Dividend Has Lacked Consistency

King's Flair International (Holdings) has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from HK$0.09 total annually to HK$0.03. Dividend payments have fallen sharply, down 67% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 31% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, King's Flair International (Holdings) has 4 warning signs (and 1 which is potentially serious) we think you should know about. Is King's Flair International (Holdings) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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