FSE Lifestyle Services Limited's (HKG:331) investors are due to receive a payment of HK$0.214 per share on 16th of December. This will take the dividend yield to an attractive 7.6%, providing a nice boost to shareholder returns.

View our latest analysis for FSE Lifestyle Services

FSE Lifestyle Services' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment was quite easily covered by earnings, but it made up 172% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 26.1%. 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.

FSE Lifestyle Services' Dividend Has Lacked Consistency

It's comforting to see that FSE Lifestyle Services has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from HK$0.10 total annually to HK$0.438. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that FSE Lifestyle Services has been growing its earnings per share at 9.9% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On FSE Lifestyle Services' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think FSE Lifestyle Services is a great stock to add to your portfolio if income is your focus.

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 identified 2 warning signs for FSE Lifestyle Services (1 is significant!) that you should be aware of before investing. Is FSE Lifestyle Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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