The board of Tenfu (Cayman) Holdings Company Limited (HKG:6868) has announced that it will pay a dividend of CN¥0.08 per share on the 28th of May. This means that the dividend yield is 3.0%, which is a bit low when comparing to other companies in the industry.
Tenfu (Cayman) Holdings' Future Dividends May Potentially Be At Risk
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before this announcement, Tenfu (Cayman) Holdings was paying out 76% of earnings, but a comparatively small of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Looking forward, EPS could fall by 11.5% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 100%, which is definitely a bit high to be sustainable going forward.
View our latest analysis for Tenfu (Cayman) Holdings
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was CN¥0.166, compared to the most recent full-year payment of CN¥0.097. This works out to be a decline of approximately 5.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Limited Growth Potential
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Tenfu (Cayman) Holdings' EPS has fallen by approximately 12% per year during the past five years. 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
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Tenfu (Cayman) Holdings that you should be aware of before investing. Is Tenfu (Cayman) Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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