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 5.9% is still a nice boost to shareholder returns, despite the cut.

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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. Based on the last payment, 361 Degrees International's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 44.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

See 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 implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that 361 Degrees International has been growing its earnings per share at 22% a 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

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While 361 Degrees International is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for 361 Degrees International (of which 1 shouldn't be ignored!) 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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