The board of Transport International Holdings Limited (HKG:62) has announced that it will pay a dividend of HK$0.50 per share on the 26th of June. This means the annual payment is 5.9% of the current stock price, which is above the average for the industry.

We've discovered 4 warning signs about Transport International Holdings. View them for free.

Transport International Holdings' Projections Indicate Future Payments May Be Unsustainable

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 134% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

If the company can't turn things around, EPS could fall by 23.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 163%, which could put the dividend in jeopardy if the company's earnings don't improve.

Check out our latest analysis for Transport International Holdings

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 HK$0.60 in 2015, and the most recent fiscal year payment was HK$0.50. The dividend has shrunk at around 1.8% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Transport International Holdings' EPS has declined at around 23% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Transport International Holdings' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Transport International Holdings' payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Transport International Holdings has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Transport International Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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