The board of Shougang Fushan Resources Group Limited (HKG:639) has announced that the dividend on 7th of November will be reduced by 10% from last year's HK$0.10 to HK$0.09. However, the dividend yield of 9.2% is still a decent boost to shareholder returns.
See our latest analysis for Shougang Fushan Resources Group
Shougang Fushan Resources Group's Future Dividends May Potentially Be At Risk
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Shougang Fushan Resources Group's dividend made up quite a large proportion of earnings but only 53% of free cash flows. This leaves plenty of cash for reinvestment into the business.
EPS is set to fall by 13.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 123%, which could put the dividend in jeopardy if the company's earnings don't improve.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was HK$0.105, compared to the most recent full-year payment of HK$0.28. This means that it has been growing its distributions at 10% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Has Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Shougang Fushan Resources Group has impressed us by growing EPS at 7.8% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On Shougang Fushan Resources Group's Dividend
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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. Overall, we don't think this company has the makings of a good income stock.
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. Just as an example, we've come across 2 warning signs for Shougang Fushan Resources Group you should be aware of, and 1 of them is a bit concerning. 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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