Stock Analysis

Suga International Holdings (HKG:912) Is Due To Pay A Dividend Of HK$0.06

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Suga International Holdings Limited (HKG:912) has announced that it will pay a dividend of HK$0.06 per share on the 22nd of December. Based on this payment, the dividend yield on the company's stock will be 9.6%, which is an attractive boost to shareholder returns.

View our latest analysis for Suga International Holdings

Suga International Holdings' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Suga International Holdings was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, EPS could fall by 1.0% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 58%, which we are pretty comfortable with and we think is feasible on an earnings basis.

SEHK:912 Historic Dividend November 29th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was HK$0.13, compared to the most recent full-year payment of HK$0.14. Its dividends have grown at less than 1% per annum over this time frame. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Suga International Holdings' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Suga International Holdings (of which 1 doesn't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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