Lonking Holdings (HKG:3339) cuts its dividend to HK$0.22

Lonking Holdings Limited (HKG:3339) announced that it would reduce its dividend payable on July 29 to HK$0.22. Yield is still above the industry average at 10%.

Check out our latest analysis for Lonking Holdings

Lonking Holdings does not earn enough to cover its payments

If the payouts aren’t sustainable, a high return for a few years won’t matter much. Based on the latest dividend, Lonking Holdings earns enough to cover the payment, but it represents 2,066% of cash flow. While the company may be more focused on returning cash to shareholders than growing the business at this time, we believe that such a high cash payout ratio could expose the dividend to a reduction if the company was having difficulties.

Looking ahead, earnings per share are expected to fall 12.9% over the next year. If the dividend continues on recent trends, we estimate the payout ratio could reach 111%, which could put the dividend at risk if company earnings do not improve.

SEHK: 3339 Historic dividend May 13, 2022

Dividend volatility

The company’s dividend history has been marked by instability, with at least 1 cut in the past 10 years. The first annual payment in the past 10 years was CN¥0.12 in 2012, and the most recent year’s payment was CN¥0.18. This means that it increased its distributions by 4.1% per year during this period. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the magnitude of the cut would eliminate most of the growth anyway, making it less attractive as a income investment.

The dividend should increase

Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. We are encouraged to see that Lonking Holdings has increased its earnings per share by 23% per year over the past five years. The company has no problem growing, despite returning much of the capital to shareholders, which is a very nice combination for a dividend-paying stock.

In summary

Overall, the dividend seems to have been a bit high, which is why it has now been reduced. While Lonking Holdings earns enough to cover payments, cash flow is lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. Meanwhile, despite the importance of dividend payouts, these are not the only factors our readers should be aware of when evaluating a company. Example: we have identified 4 warning signs for Lonking Holdings (1 of which should not be ignored!) that you should know. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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