SUNeVision Holdings (HKG:1686) Is Paying Out Less In Dividends Than Last Year

SUNeVision Holdings Ltd. (HKG:1686) has announced it will be reducing its dividend payable on the 23rd of November to HK$0.112, which is 46% lower than what investors received last year for the same period. The yield is still above the industry average at 5.5%.

See our latest analysis for SUNeVision Holdings

SUNeVision 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, the dividend made up 97% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, earnings per share is forecast to rise by 52.7% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 36% which would be quite comfortable going to take the dividend forward.

SUNeVision Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was HK$0.0818, compared to the most recent full-year payment of HK$0.208. This means that it has been growing its distributions at 9.8% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 3.0% a year for the past five years, which isn't massive but still better than seeing them shrink. The earnings growth is anaemic, and the company is paying out 97% of its profit. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

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 payout levels might be a bit high for our liking, but we can't deny that until now, the payments have been pretty consistent. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for SUNeVision Holdings that you should be aware of before investing. Is SUNeVision Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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