Emperor International Holdings (HKG:163) Has Announced That Its Dividend Will Be Reduced To HK$0.012

Emperor International Holdings Limited (HKG:163) is reducing its dividend to HK$0.012 on the 14th of September. This payment takes the dividend yield to 2.9%, which only provides a modest boost to overall returns.

Check out our latest analysis for Emperor International Holdings

Emperor International Holdings' Distributions May Be Difficult To Sustain

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Emperor International Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Recent, EPS has fallen by 24.0%, so this could continue over the next year. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.

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. The dividend has gone from HK$0.069 in 2011 to the most recent annual payment of HK$0.024. The dividend has shrunk at around 10.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Emperor International Holdings' EPS has fallen by approximately 24% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

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 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 probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Emperor International Holdings (of which 2 are a bit unpleasant!) you should know about. We have also put together a list of global stocks with a solid dividend.

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