Luks Group (Vietnam Holdings)'s (HKG:366) Dividend Will Be Reduced To HK$0.02

Luks Group (Vietnam Holdings) Company Limited (HKG:366) is reducing its dividend from last year's comparable payment to HK$0.02 on the 14th of June. This payment takes the dividend yield to 3.9%, which only provides a modest boost to overall returns.

See our latest analysis for Luks Group (Vietnam Holdings)

Luks Group (Vietnam Holdings)'s Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Luks Group (Vietnam Holdings) was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, EPS could fall by 10.6% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 40%, which is definitely feasible to continue.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.05 in 2013 to the most recent total annual payment of HK$0.04. Doing the maths, this is a decline of about 2.2% 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.

Dividend Growth Potential Is Shaky

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. Luks Group (Vietnam Holdings)'s EPS has fallen by approximately 11% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into 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 Luks Group (Vietnam Holdings) is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Luks Group (Vietnam Holdings) (1 is a bit unpleasant!) that you should be aware of before investing. Is Luks Group (Vietnam 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.