Topsports International Holdings (HKG:6110) Is Paying Out A Dividend Of CN¥0.2129

Topsports International Holdings Limited (HKG:6110) has announced that it will pay a dividend of CN¥0.2129 per share on the 22nd of August. Based on this payment, the dividend yield on the company's stock will be 9.9%, which is an attractive boost to shareholder returns.

See our latest analysis for Topsports International Holdings

Topsports International Holdings' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Topsports International Holdings was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

EPS is set to grow by 32.8% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 82% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Topsports International Holdings' Dividend Has Lacked Consistency

It's comforting to see that Topsports International Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of CN¥0.24 in 2019 to the most recent total annual payment of CN¥0.36. This means that it has been growing its distributions at 8.4% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Topsports International Holdings May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that Topsports International Holdings' earnings per share has fallen at approximately 3.1% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Topsports International Holdings' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Topsports International Holdings' payments, as there could be some issues with sustaining them into the future. While Topsports International Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Topsports International Holdings 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.

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