Fulu Holdings' (HKG:2101) Shareholders Will Receive A Smaller Dividend Than Last Year

Fulu Holdings Limited's (HKG:2101) dividend is being reduced to HK$0.18 on the 8th of June. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Fulu Holdings

Fulu Holdings Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Fulu Holdings' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

EPS is set to fall by 53.6% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 224%, which could put the dividend in jeopardy if the company's earnings don't improve.

Fulu Holdings Doesn't Have A Long Payment History

It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. 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 dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Fulu Holdings has seen EPS fall by 54% over the last 12 months. A large drop like this could indicate a major challenge in the business, and could certainly flow through to reduced dividend payments. Any one year of performance can be misleading for a variety of reasons, so we wouldn't like to form any strong conclusions based on these numbers alone.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Fulu Holdings you should be aware of, and 1 of them is a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.