Most Kwai Chung's (HKG:1716) Shareholders Will Receive A Smaller Dividend Than Last Year

Most Kwai Chung Limited (HKG:1716) is reducing its dividend to HK$0.034 on the 12th of October. However, the dividend yield of 3.5% still remains in a typical range for the industry.

Check out our latest analysis for Most Kwai Chung

Most Kwai Chung Is Paying Out More Than It Is Earning

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Most Kwai Chung's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS could expand by 0.6% if the company continues along the path it has been on recently. 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. Dividend payments have fallen sharply, down 35% 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.

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. So the company has struggled to grow its EPS yet it's still paying out 98% of its earnings. 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.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Most Kwai Chung has 4 warning signs (and 1 which is concerning) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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