Tiangong International Company Limited's (HKG:826) periodic dividend will be increasing on the 18th of July to CN¥0.0439, with investors receiving 9.7% more than last year's CN¥0.04. The payment will take the dividend yield to 2.4%, which is in line with the average for the industry.
See our latest analysis for Tiangong International
Tiangong International's Dividend Is Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Tiangong International's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
The next year is set to see EPS grow by 159.6%. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.
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 dividend has gone from an annual total of CN¥0.0494 in 2014 to the most recent total annual payment of CN¥0.04. Doing the maths, this is a decline of about 2.1% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Achieve
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 5.0% per year. While EPS growth is quite low, Tiangong International has the option to increase the payout ratio to return more cash to shareholders.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Tiangong International's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Tiangong International management tenure, salary, and performance. 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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