Asia Financial Holdings (HKG:662) Is Paying Out Less In Dividends Than Last Year

Asia Financial Holdings Limited (HKG:662) is reducing its dividend from last year's comparable payment to HK$0.035 on the 9th of June. This means that the annual payment is 1.5% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Asia Financial Holdings

Asia Financial Holdings' Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Asia Financial Holdings was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

EPS is set to fall by 15.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 29%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was HK$0.078, compared to the most recent full-year payment of HK$0.05. This works out to be a decline of approximately 4.3% per year over that time. 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 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. Asia Financial Holdings' earnings per share has shrunk at 15% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Asia Financial Holdings is a great stock to add to your portfolio if income is your focus.

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, Asia Financial Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Is Asia Financial Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.