Road King Infrastructure's (HKG:1098) Shareholders Will Receive A Smaller Dividend Than Last Year

Road King Infrastructure Limited (HKG:1098) is reducing its dividend to HK$0.20 on the 9th of June. This means that the annual payment will be 5.1% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Road King Infrastructure

Road King Infrastructure's Earnings Easily Cover the Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Road King Infrastructure was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 4.1% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 28%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was HK$0.45, compared to the most recent full-year payment of HK$0.35. Doing the maths, this is a decline of about 2.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Road King Infrastructure May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Road King Infrastructure's earnings per share has shrunk at approximately 4.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

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. We would probably look elsewhere for an income investment.

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 3 warning signs for Road King Infrastructure you should be aware of, and 1 of them makes us a bit uncomfortable. Is Road King Infrastructure 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.