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

King's Flair International (Holdings) Limited's (HKG:6822) dividend is being reduced from last year's payment covering the same period to HK$0.03 on the 3rd of July. Despite the cut, the dividend yield of 4.0% will still be comparable to other companies in the industry.

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

King's Flair International (Holdings) Doesn't Earn Enough To Cover Its Payments

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, King's Flair International (Holdings)'s was paying out quite a large proportion of earnings and 80% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

If the company can't turn things around, EPS could fall by 30.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 127%, which could put the dividend in jeopardy if the company's earnings don't 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. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was HK$0.09 in 2015, and the most recent fiscal year payment was HK$0.03. This works out to a decline of approximately 67% 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

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings per share has been sinking by 31% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

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

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for King's Flair International (Holdings) (1 makes us a bit uncomfortable!) 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.