Wharf Real Estate Investment's (HKG:1997) Dividend Is Being Reduced To HK$0.67

The board of Wharf Real Estate Investment Company Limited (HKG:1997) has announced it will be reducing its dividend by 4.3% from last year's payment of HK$0.70 on the 12th of September, with shareholders receiving HK$0.67. This payment takes the dividend yield to 3.6%, which only provides a modest boost to overall returns.

View our latest analysis for Wharf Real Estate Investment

Wharf Real Estate Investment's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. While Wharf Real Estate Investment is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, so there isn't too much pressure on the dividend.

Wharf Real Estate Investment's Dividend Has Lacked Consistency

Wharf Real Estate Investment has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The annual payment during the last 5 years was HK$0.95 in 2018, and the most recent fiscal year payment was HK$1.31. This implies that the company grew its distributions at a yearly rate of about 6.6% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Wharf Real Estate Investment might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Wharf Real Estate Investment's EPS has declined at around 63% 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. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Wharf Real Estate Investment's Dividend Doesn't Look Sustainable

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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Wharf Real Estate Investment that investors should take into consideration. Is Wharf Real Estate Investment not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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