The board of S E A Holdings Limited (HKG:251) has announced that it will pay a dividend of HK$0.02 per share on the 10th of October. This means the annual payment will be 3.4% of the current stock price, which is lower than the industry average.
Check out our latest analysis for S E A Holdings
S E A Holdings' Distributions May Be Difficult To Sustain
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. While S E A Holdings is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Looking forward, earnings per share could fall by 71.0% over the next year if the trend of the last few years can't be broken. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of HK$0.11 in 2014 to the most recent total annual payment of HK$0.05. The dividend has shrunk at around 7.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
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. Over the past five years, it looks as though S E A Holdings' EPS has declined at around 71% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
S E A Holdings' Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for S E A Holdings that investors should know about before committing capital to this stock. Is S E A Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.