S.A.S. Dragon Holdings (HKG:1184) Is Paying Out Less In Dividends Than Last Year

S.A.S. Dragon Holdings Limited (HKG:1184) has announced that on 7th of June, it will be paying a dividend ofHK$0.25, which a reduction from last year's comparable dividend. However, the dividend yield of 9.7% is still a decent boost to shareholder returns.

View our latest analysis for S.A.S. Dragon Holdings

S.A.S. Dragon Holdings' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, S.A.S. Dragon Holdings' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 5.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 63%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of HK$0.065 in 2013 to the most recent total annual payment of HK$0.35. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has 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. It's encouraging to see that S.A.S. Dragon Holdings has been growing its earnings per share at 5.7% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While S.A.S. Dragon Holdings is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for S.A.S. Dragon Holdings that you should be aware of before investing. 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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