King's Flair International (Holdings)'s (HKG:6822) Dividend Is Being Reduced To HK$0.02

King's Flair International (Holdings) Limited (HKG:6822) is reducing its dividend from last year's comparable payment to HK$0.02 on the 5th of July. This means that the annual payment will be 4.4% of the current stock price, which is in line with the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. King's Flair International (Holdings)'s stock price has reduced by 35% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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

King's Flair International (Holdings)'s Distributions May Be Difficult To Sustain

Solid dividend yields are great, but they only really help us if the payment is sustainable. While King's Flair International (Holdings) is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share could fall by 32.0% over the next year if the trend of the last few years can't be broken. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

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

Looking back, King's Flair International (Holdings)'s dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the annual payment back then was HK$0.09, compared to the most recent full-year payment of HK$0.02. Dividend payments have fallen sharply, down 78% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. King's Flair International (Holdings)'s EPS has fallen by approximately 32% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

King's Flair International (Holdings)'s Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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 don't think King's Flair International (Holdings) is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for King's Flair International (Holdings) (1 is significant!) that you should be aware of before investing. 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.