Fulu Holdings' (HKG:2101) Dividend Will Be Reduced To HK$0.18

Fulu Holdings Limited (HKG:2101) has announced it will be reducing its dividend payable on the 8th of June to HK$0.18. The dividend yield of 2.8% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Fulu Holdings

Fulu Holdings Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

If the company can't turn things around, EPS could fall by 53.6% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 224%, which could put the dividend under pressure if earnings don't start to improve.

Fulu Holdings Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Fulu Holdings has seen EPS fall by 54% over the last 12 months. Such a large drop can indicate that the business has run into some trouble and might end up in the dividend having to be reduced. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.

The Dividend Could Prove To Be Unreliable

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. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Fulu Holdings is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Fulu Holdings (of which 1 makes us a bit uncomfortable!) 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.