Sunwah Kingsway Capital Holdings Limited (HKG:188) has announced that it will pay a dividend of HK$0.01 per share on the 23rd of January. This makes the dividend yield 9.0%, which will augment investor returns quite nicely.

Check out our latest analysis for Sunwah Kingsway Capital Holdings

Sunwah Kingsway Capital Holdings' Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. Even though Sunwah Kingsway Capital Holdings isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share could 30.4% over the next year if the trend of the last few years can't be broken. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of HK$0.05 in 2014 to the most recent total annual payment of HK$0.02. The dividend has shrunk at around 8.8% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Sunwah Kingsway Capital Holdings' earnings per share has shrunk at 30% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Sunwah Kingsway Capital Holdings' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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.

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. Just as an example, we've come across 4 warning signs for Sunwah Kingsway Capital Holdings you should be aware of, and 1 of them is potentially serious. 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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