Stock Analysis

Suga International Holdings' (HKG:912) Dividend Is Being Reduced To HK$0.06

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SEHK:912
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Suga International Holdings Limited (HKG:912) has announced it will be reducing its dividend payable on the 25th of August to HK$0.06. The yield is still above the industry average at 8.7%.

See our latest analysis for Suga International Holdings

Suga International Holdings' Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Suga International Holdings' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 2.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 59%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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SEHK:912 Historic Dividend June 29th 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from HK$0.15 in 2012 to the most recent annual payment of HK$0.12. This works out to be a decline of approximately 2.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

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. It's not great to see that Suga International Holdings' earnings per share has fallen at approximately 2.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Suga International Holdings is earning enough to cover the payments, the cash flows are lacking. 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 3 warning signs for Suga International Holdings (1 is significant!) that you should be aware of before investing. Is Suga International Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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