361 Degrees International Limited's (HKG:1361) dividend is being reduced from last year's payment covering the same period to CN¥0.10 on the 16th of May. The dividend yield of 6.3% is still a nice boost to shareholder returns, despite the cut.
361 Degrees International's Future Dividend Projections Appear Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, 361 Degrees International was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Looking forward, earnings per share is forecast to rise by 44.0% over the next year. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.
View our latest analysis for 361 Degrees International
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.10 in 2015, and the most recent fiscal year payment was CN¥0.25. This means that it has been growing its distributions at 9.6% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that 361 Degrees International has grown earnings per share at 22% per year over the past five years. 361 Degrees International is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, 361 Degrees International has 2 warning signs (and 1 which shouldn't be ignored) we think 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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