International Housewares Retail Company Limited's (HKG:1373) dividend is being reduced from last year's payment covering the same period to HK$0.04 on the 5th of February. The yield is still above the industry average at 8.1%.
See our latest analysis for International Housewares Retail
Estimates Indicate International Housewares Retail's Could Struggle to Maintain Dividend Payments In The Future
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, International Housewares Retail was paying out 83% of earnings, but a comparatively small 14% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
EPS is set to fall by 6.9% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 96%, which could put the dividend in jeopardy if the company's earnings don't improve.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was HK$0.04 in 2014, and the most recent fiscal year payment was HK$0.08. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. International Housewares Retail might have put its house in order since then, but we remain cautious.
Dividend Growth Is Doubtful
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that International Housewares Retail's earnings per share has fallen at approximately 6.9% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. This company is not in the top tier of income providing stocks.
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 International Housewares Retail (of which 1 is a bit concerning!) 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.
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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.