The board of Evergreen Products Group Limited (HKG:1962) has announced that it will pay a dividend of HK$0.03 per share on the 20th of September. However, the dividend yield of 9.8% is still a decent boost to shareholder returns.
View our latest analysis for Evergreen Products Group
Evergreen Products Group Is Paying Out More Than It Is Earning
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Evergreen Products Group's dividend made up quite a large proportion of earnings but only 11% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Looking forward, EPS could fall by 17.6% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 98%, which is definitely a bit high to be sustainable going forward.
Evergreen Products Group's Dividend Has Lacked Consistency
Looking back, Evergreen Products Group's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of HK$0.0813 in 2018 to the most recent total annual payment of HK$0.059. Doing the maths, this is a decline of about 5.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
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. Evergreen Products Group's earnings per share has shrunk at 18% 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.
Our Thoughts On Evergreen Products Group's Dividend
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for Evergreen Products Group (2 are concerning!) that you should be aware of before investing. 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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