Wing On Company International (HKG:289) Will Pay A Dividend Of HK$0.53

Wing On Company International Limited (HKG:289) has announced that it will pay a dividend of HK$0.53 per share on the 14th of July. Despite the cut, the dividend yield of 7.3% will still be comparable to other companies in the industry.

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Wing On Company International Might Find It Hard To Continue The Dividend

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Wing On Company International is unprofitable despite paying a dividend, and it is paying out 115% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Looking forward, earnings per share could 43.6% over the next year if the trend of the last few years can't be broken. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

View our latest analysis for Wing On Company International

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was HK$1.00, compared to the most recent full-year payment of HK$0.85. The dividend has shrunk at around 1.6% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

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. Wing On Company International's earnings per share has shrunk at 44% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Wing On Company International's Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Wing On Company International 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 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.