Tsit Wing International Holdings' (HKG:2119) Dividend Is Being Reduced To HK$0.035

Tsit Wing International Holdings Limited (HKG:2119) has announced it will be reducing its dividend payable on the 24th of May to HK$0.035, which is 12% lower than what investors received last year. The yield is still above the industry average at 7.0%.

See our latest analysis for Tsit Wing International Holdings

Tsit Wing International Holdings' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Tsit Wing International Holdings was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

If the trend of the last few years continues, EPS will grow by 1.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.

Tsit Wing International Holdings' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2019, the first annual payment was HK$0.058, compared to the most recent full-year payment of HK$0.067. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% 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.

Tsit Wing 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. Tsit Wing International Holdings hasn't seen much change in its earnings per share over the last five years. Growth of 1.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

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 low payout ratio is a redeeming feature, but generally we are not too happy with the payments Tsit Wing International Holdings has been making. 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. Taking the debate a bit further, we've identified 2 warning signs for Tsit Wing International Holdings that investors need to be conscious of moving forward. Is Tsit Wing International Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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