Far East Consortium International's (HKG:35) Shareholders Will Receive A Bigger Dividend Than Last Year

Far East Consortium International Limited (HKG:35) will increase its dividend from last year's comparable payment on the 21st of September to HK$0.16. This will take the dividend yield to an attractive 8.0%, providing a nice boost to shareholder returns.

Check out our latest analysis for Far East Consortium International

Far East Consortium International's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Far East Consortium International's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to fall by 43.9% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 68%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.06 in 2012 to the most recent total annual payment of HK$0.20. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Far East Consortium International's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While EPS growth is quite low, Far East Consortium International has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Far East Consortium International's Dividend

Overall, we always like to see the dividend being raised, but we don't think Far East Consortium International will make a great income stock. While Far East Consortium International is earning enough to cover the payments, the cash flows are lacking. 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. Case in point: We've spotted 4 warning signs for Far East Consortium International (of which 2 are a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.