Fairwood Holdings' (HKG:52) Dividend Will Be HK$0.17

The board of Fairwood Holdings Limited (HKG:52) has announced that it will pay a dividend of HK$0.17 per share on the 2nd of October. However, the dividend yield of 4.0% is still a decent boost to shareholder returns.

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Fairwood Holdings' Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Fairwood Holdings was paying out 80% of earnings, but a comparatively small of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 10.2% over the next 12 months if recent trends continue. If recent patterns in the dividend continue, we could see the payout ratio reaching 83% in the next 12 months which is on the higher end of the range we would say is sustainable.

See our latest analysis for Fairwood Holdings

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was HK$0.62 in 2015, and the most recent fiscal year payment was HK$0.22. This works out to be a decline of approximately 9.8% per year over that time. 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

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Fairwood Holdings' earnings per share has shrunk at 10% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

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 probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Fairwood Holdings has 4 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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