SITC International Holdings' (HKG:1308) Upcoming Dividend Will Be Larger Than Last Year's

SITC International Holdings Company Limited (HKG:1308) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of September to $0.72. Although the dividend is now higher, the yield is only 5.7%, which is below the industry average.

Check out our latest analysis for SITC International Holdings

SITC International Holdings Doesn't Earn Enough To Cover Its Payments

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, SITC International Holdings was paying out quite a large proportion of both earnings and cash flow, with the dividend being 96% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

The next 12 months is set to see EPS grow by 17.6%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on 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 $0.0193 in 2014, and the most recent fiscal year payment was $0.128. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. SITC 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.

The Dividend Looks Likely To Grow

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 SITC International Holdings has been growing its earnings per share at 21% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which SITC International Holdings hasn't been doing.

Our Thoughts On SITC International Holdings' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While SITC International Holdings is earning enough to cover the payments, the cash flows are lacking. 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. As an example, we've identified 2 warning signs for SITC International 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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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.