International Housewares Retail (HKG:1373) Will Pay A Larger Dividend Than Last Year At HK$0.15

International Housewares Retail Company Limited (HKG:1373) has announced that it will be increasing its dividend on the 8th of February to HK$0.15. This will take the dividend yield from 7.2% to 11%, providing a nice boost to shareholder returns.

View our latest analysis for International Housewares Retail

International Housewares Retail Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, International Housewares Retail was paying out 85% of earnings, but a comparatively small 27% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share could rise by 17.6% over the next year if things go the same way as they have for the last few years. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 114% over the next year.

International Housewares Retail Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2013, the first annual payment was HK$0.04, compared to the most recent full-year payment of HK$0.20. This means that it has been growing its distributions at 22% per annum over that time. International Housewares Retail has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see International Housewares Retail has been growing its earnings per share at 18% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for International Housewares Retail that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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