King's Flair International (Holdings) Limited (HKG:6822) has announced that it will pay a dividend of HK$0.04 per share on the 8th of October. This makes the dividend yield 8.5%, which will augment investor returns quite nicely.
King's Flair International (Holdings)'s Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, King's Flair International (Holdings)'s dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 102% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
If the company can't turn things around, EPS could fall by 5.8% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 79%, meaning that most of the company's earnings is being paid out to shareholders.
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. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from HK$0.09 to HK$0.12. This implies that the company grew its distributions at a yearly rate of about 4.2% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Dividend Growth Is Doubtful
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though King's Flair International (Holdings)'s EPS has declined at around 5.8% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
King's Flair International (Holdings)'s Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about King's Flair International (Holdings)'s payments, as there could be some issues with sustaining them into the future. While King's Flair International (Holdings) is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
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. Case in point: We've spotted 2 warning signs for King's Flair International (Holdings) (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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