Sunwah Kingsway Capital Holdings (HKG:188) Will Pay A Dividend Of HK$0.01

The board of Sunwah Kingsway Capital Holdings Limited (HKG:188) has announced that it will pay a dividend on the 25th of January, with investors receiving HK$0.01 per share. This means the annual payment is 9.0% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Sunwah Kingsway Capital Holdings

Sunwah Kingsway Capital Holdings' Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Sunwah Kingsway Capital Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Recent, EPS has fallen by 34.9%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was HK$0.045, compared to the most recent full-year payment of HK$0.02. This works out to be a decline of approximately 7.8% 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.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings per share has been sinking by 35% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Sunwah Kingsway Capital Holdings' Dividend Doesn't Look Sustainable

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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Sunwah Kingsway Capital Holdings (of which 2 are a bit unpleasant!) you should know about. Is Sunwah Kingsway Capital Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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