K. Wah International Holdings (HKG:173) Is Due To Pay A Dividend Of HK$0.05

K. Wah International Holdings Limited (HKG:173) will pay a dividend of HK$0.05 on the 31st of July. This means that the dividend yield is 5.0%, which is a bit low when comparing to other companies in the industry.

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K. Wah International Holdings' Projections Indicate Future Payments May Be Unsustainable

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, K. Wah International Holdings' dividend made up quite a large proportion of earnings but only of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to fall by 41.4%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 145%, which could put the dividend under pressure if earnings don't start to improve.

View our latest analysis for K. Wah International Holdings

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$0.15 in 2015, and the most recent fiscal year payment was HK$0.09. Doing the maths, this is a decline of about 5.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though K. Wah International Holdings' EPS has declined at around 36% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

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. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for K. Wah International Holdings (of which 1 is concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.