Playmates Toys Limited's (HKG:869) investors are due to receive a payment of HK$0.02 per share on 27th of September. Based on this payment, the dividend yield on the company's stock will be 9.5%, which is an attractive boost to shareholder returns.
View our latest analysis for Playmates Toys
Playmates Toys' Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. But before making this announcement, Playmates Toys' earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.
If the trend of the last few years continues, EPS will grow by 82.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from HK$0.05 total annually to HK$0.06. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Playmates Toys has grown earnings per share at 83% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Our Thoughts On Playmates Toys' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Playmates Toys' payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Playmates Toys has been making. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Playmates Toys that investors should know about before committing capital to this stock. 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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