Stock Analysis

Suga International Holdings' (HKG:912) Upcoming Dividend Will Be Larger Than Last Year's

  •  Updated
SEHK:912
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Suga International Holdings Limited's (HKG:912) dividend will be increasing to HK$0.11 on 27th of August. This will take the dividend yield from 6.4% to 7.8%, providing a nice boost to shareholder returns.

See our latest analysis for Suga International Holdings

Suga International Holdings' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it 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. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Unless the company can turn things around, EPS could fall by 0.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 57%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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SEHK:912 Historic Dividend August 15th 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was HK$0.12, compared to the most recent full-year payment of HK$0.14. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Suga International Holdings May Find It Hard To Grow The Dividend

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. Unfortunately, Suga International Holdings' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Suga International Holdings' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Suga 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Suga International Holdings (1 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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