Guoco Group Limited (HKG:53) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of December to $2.70. Despite this raise, the dividend yield of 4.4% is only a modest boost to shareholder returns.
View our latest analysis for Guoco Group
Guoco Group's Future Dividends May Potentially Be At Risk
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Guoco Group's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
EPS is set to grow by 1.0% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 215% over the next year.
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 $0.258 in 2014 to the most recent total annual payment of $0.411. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Guoco Group May Find It Hard To Grow The Dividend
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. Unfortunately, Guoco Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, Guoco Group could always pay out a higher proportion of earnings to increase shareholder returns.
Our Thoughts On Guoco Group's Dividend
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
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. Taking the debate a bit further, we've identified 2 warning signs for Guoco Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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