Most Kwai Chung (HKG:1716) Has Announced That Its Dividend Will Be Reduced To HK$0.034

Most Kwai Chung Limited (HKG:1716) has announced it will be reducing its dividend payable on the 12th of October to HK$0.034. Based on this payment, the dividend yield will be 3.0%, which is lower than the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Most Kwai Chung's stock price has increased by 90% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Most Kwai Chung

Most Kwai Chung Is Paying Out More Than It Is Earning

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Most Kwai Chung's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to grow by 0.6% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 98%, which probably can't continue without starting to put some pressure on the balance sheet.

Most Kwai Chung's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2019, the first annual payment was HK$0.052, compared to the most recent full-year payment of HK$0.034. The dividend has fallen 35% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Most Kwai Chung May Find It Hard To Grow The Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. However, Most Kwai Chung's EPS was effectively flat over the past three years, which could stop the company from paying more every year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

Our Thoughts On Most Kwai Chung's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

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. Just as an example, we've come across 4 warning signs for Most Kwai Chung you should be aware of, and 1 of them is a bit concerning. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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