Chow Tai Fook Jewellery Group Limited (HKG:1929) is reducing its dividend to HK$0.20 on the 24th of Decemberwhich is 20% less than last year's comparable payment of HK$0.25. The yield is still above the industry average at 7.7%.
See our latest analysis for Chow Tai Fook Jewellery Group
Chow Tai Fook Jewellery Group's Projected Earnings Seem Likely To Cover Future Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was higher than its profits, and made up 88% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
The next year is set to see EPS grow by 72.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from HK$0.38 total annually to HK$0.55. This means that it has been growing its distributions at 3.8% per annum over that time. 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.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Chow Tai Fook Jewellery Group's EPS was effectively flat over the past five years, which could stop the company from paying more every year. So the company has struggled to grow its EPS yet it's still paying out 112% of its earnings. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.
The Dividend Could Prove To Be Unreliable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Chow Tai Fook Jewellery Group that you should be aware of before investing. Is Chow Tai Fook Jewellery Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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