K. Wah International Holdings (HKG:173) Is Due To Pay A Dividend Of HK$0.05

K. Wah International Holdings Limited (HKG:173) has announced that it will pay a dividend of HK$0.05 per share on the 31st of July. This payment takes the dividend yield to 4.9%, which only provides a modest boost to overall returns.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

K. Wah International Holdings' Projections Indicate Future Payments May Be Unsustainable

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, K. Wah International Holdings' dividend made up quite a large proportion of earnings but only 8.7% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to fall by 41.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 145%, which could put the dividend under pressure if earnings don't start to improve.

View our latest analysis for K. Wah International Holdings

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.15 in 2015 to the most recent total annual payment of HK$0.09. The dividend has shrunk at around 5.0% a year during that period. 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.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though K. Wah International Holdings' EPS has declined at around 36% a year. 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.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for K. Wah International Holdings (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.