Convenience Retail Asia (HKG:831) Has Affirmed Its Dividend Of HK$0.05

The board of Convenience Retail Asia Limited (HKG:831) has announced that it will pay a dividend of HK$0.05 per share on the 12th of June. This means the annual payment is 8.1% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Convenience Retail Asia

Convenience Retail Asia's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Convenience Retail Asia was paying out 80% of earnings, but a comparatively small 40% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

If the company can't turn things around, EPS could fall by 15.1% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 82% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from HK$0.168 total annually to HK$0.07. Doing the maths, this is a decline of about 8.4% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Convenience Retail Asia's EPS has declined at around 15% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Our Thoughts On Convenience Retail Asia's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Convenience Retail Asia has 3 warning signs (and 1 which is a bit concerning) we think you should know about. 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.