The board of Wong's International Holdings Limited (HKG:99) has announced that it will pay a dividend of HK$0.015 per share on the 30th of September. The dividend yield is 1.5% based on this payment, which is a little bit low compared to the other companies in the industry.
Wong's International Holdings' Distributions May Be Difficult To Sustain
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Wong's International Holdings is not generating a profit, and despite this is paying out most of its free cash flow as a dividend. Paying a dividend while unprofitable is generally considered an aggressive policy, and with limited funds retained for reinvestment, growth may be slow.
Over the next year, EPS might fall by 33.2% 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.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was HK$0.11 in 2011, and the most recent fiscal year payment was HK$0.03. Dividend payments have fallen sharply, down 73% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Has Limited Growth Potential
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Wong's International Holdings' earnings per share has shrunk at 33% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Wong's International Holdings is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Wong's International Holdings that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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