Shoucheng Holdings' (HKG:697) Dividend Will Be Reduced To HK$0.041

Shoucheng Holdings Limited (HKG:697) is reducing its dividend to HK$0.041 on the 29th of Octoberwhich is 5.1% less than last year. This means that the annual payment will be 5.7% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Shoucheng Holdings

Shoucheng Holdings' Distributions May Be Difficult To Sustain

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even in the absence of profits, Shoucheng Holdings is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

If the trend of the last few years continues, EPS will grow by 40.4% over the next 12 months. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was HK$0.05, compared to the most recent full-year payment of HK$0.098. This works out to be a compound annual growth rate (CAGR) of approximately 6.9% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Company Could Face Some Challenges Growing The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Shoucheng Holdings has seen EPS rising for the last five years, at 40% per annum. The company hasn't been turning a profit, but it running in the right direction. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

Shoucheng Holdings' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Shoucheng Holdings that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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