Wong's Kong King International (Holdings) (HKG:532) Has Announced That It Will Be Increasing Its Dividend To HK$0.035

Wong's Kong King International (Holdings) Limited (HKG:532) will increase its dividend on the 17th of July to HK$0.035, which is 17% higher than last year's payment from the same period of HK$0.03. This will take the dividend yield to an attractive 8.3%, providing a nice boost to shareholder returns.

View our latest analysis for Wong's Kong King International (Holdings)

Wong's Kong King International (Holdings)'s Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Wong's Kong King International (Holdings) was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, EPS could fall by 7.9% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 61%, which is definitely feasible to continue.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was HK$0.015, compared to the most recent full-year payment of HK$0.05. This means that it has been growing its distributions at 13% per annum over that time. Wong's Kong King International (Holdings) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Is Doubtful

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. In the last five years, Wong's Kong King International (Holdings)'s earnings per share has shrunk at approximately 7.9% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Wong's Kong King International (Holdings)'s Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Wong's Kong King International (Holdings)'s payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Wong's Kong King International (Holdings) you should be aware of, and 1 of them shouldn't be ignored. 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.