Luk Fook Holdings (International) Limited (HKG:590) has announced that on 24th of December, it will be paying a dividend ofHK$0.55, which a reduction from last year's comparable dividend. The dividend yield of 9.3% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Luk Fook Holdings (International)

Luk Fook Holdings (International)'s Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Luk Fook Holdings (International)'s dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 35.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was HK$1.28, compared to the most recent full-year payment of HK$1.36. Dividend payments have been growing, but very slowly over the period. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Luk Fook Holdings (International) hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Luk Fook Holdings (International)'s Dividend

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 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Luk Fook Holdings (International) that investors should take into consideration. 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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