Café de Coral Holdings (HKG:341) Will Pay A Smaller Dividend Than Last Year

Café de Coral Holdings Limited's (HKG:341) dividend is being reduced by 33% to HK$0.10 per share on 23rd of December, in comparison to last year's comparable payment of HK$0.15. This means the annual payment is 7.0% of the current stock price, which is above the average for the industry.

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Café de Coral Holdings' Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Café de Coral Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to rise by 139.5% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 56% which would be quite comfortable going to take the dividend forward.

Check out our latest analysis for Café de Coral Holdings

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from HK$0.78 total annually to HK$0.40. Doing the maths, this is a decline of about 6.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Café de Coral Holdings has grown earnings per share at 9.7% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Café de Coral Holdings is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Café de Coral Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.