Associated International Hotels (HKG:105) Is Reducing Its Dividend To HK$0.14

The board of Associated International Hotels Limited (HKG:105) has announced it will be reducing its dividend by 12% from last year's payment of HK$0.16 on the 8th of January, with shareholders receiving HK$0.14. Despite the cut, the dividend yield of 6.7% will still be comparable to other companies in the industry.

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Associated International Hotels' Distributions May Be Difficult To Sustain

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Despite not being profitable, Associated International Hotels is paying out most of its free cash flow as a dividend. Paying a dividend while unprofitable is generally considered an aggressive policy, and with limited funds retained for reinvestment, growth may be slow.

Over the next year, EPS could expand by 32.5% if recent trends continue. This is the right direction to be moving, but it is probably not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

View our latest analysis for Associated International Hotels

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was HK$1.20 in 2015, and the most recent fiscal year payment was HK$0.35. The dividend has fallen 71% over that period. 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 Company Could Face Some Challenges Growing The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Associated International Hotels has impressed us by growing EPS at 33% per year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Associated International Hotels that you should be aware of before investing. Is Associated International Hotels 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.