AEON Stores (Hong Kong) (HKG:984) Will Pay A Dividend Of HK$0.02

The board of AEON Stores (Hong Kong) Co., Limited (HKG:984) has announced that it will pay a dividend of HK$0.02 per share on the 28th of June. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

Check out our latest analysis for AEON Stores (Hong Kong)

AEON Stores (Hong Kong)'s Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. While AEON Stores (Hong Kong) is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Over the next year, EPS might fall by 38.0% based on recent performance. 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.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was HK$0.614 in 2013, and the most recent fiscal year payment was HK$0.05. Dividend payments have fallen sharply, down 92% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. AEON Stores (Hong Kong)'s earnings per share has shrunk at 38% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

AEON Stores (Hong Kong)'s Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about AEON Stores (Hong Kong)'s payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for AEON Stores (Hong Kong) you should be aware of, and 1 of them is concerning. Is AEON Stores (Hong Kong) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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