Infinity Development Holdings' (HKG:640) Dividend Will Be Reduced To HK$0.028

Infinity Development Holdings Company Limited (HKG:640) has announced it will be reducing its dividend payable on the 14th of March to HK$0.028. This means the annual payment is 8.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Infinity Development Holdings

Infinity Development Holdings' Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Infinity Development Holdings' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS could expand by 4.6% if the company continues along the path it has been on recently. If recent patterns in the dividend continue, the payout ratio in 12 months could be 88% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was HK$0.012 in 2012, and the most recent fiscal year payment was HK$0.046. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Infinity Development Holdings May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 4.6% per annum over the last five years, which admittedly is a bit slow. Growth of 4.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Infinity Development Holdings' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Infinity Development Holdings is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 4 warning signs for Infinity Development Holdings that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.