SITC International Holdings Company Limited (HKG:1308) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to $1.40. Despite this raise, the dividend yield of 9.9% is only a modest boost to shareholder returns.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Estimates Indicate SITC International Holdings' Could Struggle to Maintain Dividend Payments In The Future

Even a low dividend yield can be attractive if it is sustained for years on end. Before this announcement, SITC International Holdings was paying out 70% of earnings, but a comparatively small of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to fall by 21.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach over 200%, which could put the dividend in jeopardy if the company's earnings don't improve.

See our latest analysis for SITC International Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from $0.0284 total annually to $0.272. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. 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 Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that SITC International Holdings has grown earnings per share at 36% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why SITC International Holdings is not retaining those earnings to reinvest in growth.

We Really Like SITC International Holdings' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. To that end, SITC International Holdings has 3 warning signs (and 1 which can't be ignored) we think you should know about. Is SITC International Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.