International Housewares Retail (HKG:1373) Will Pay A Smaller Dividend Than Last Year

International Housewares Retail Company Limited (HKG:1373) is reducing its dividend from last year's comparable payment to HK$0.10 on the 24th of October. This means the annual payment is 9.7% of the current stock price, which is above the average for the industry.

See our latest analysis for International Housewares Retail

International Housewares Retail's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, International Housewares Retail was paying out 79% of earnings, but a comparatively small 32% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS could expand by 11.5% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 89%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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 annual payment during the last 10 years was HK$0.04 in 2013, and the most recent fiscal year payment was HK$0.22. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Could Be Constrained

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. It's encouraging to see that International Housewares Retail has been growing its earnings per share at 12% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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. Overall, we don't think this company has the makings of a good income stock.

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 1 warning sign for International Housewares Retail that investors need to be conscious of moving forward. Is International Housewares Retail not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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