Swire Pacific Limited (HKG:19) will increase its dividend from last year's comparable payment on the 9th of May to HK$2.10. Even though the dividend went up, the yield is still quite low at only 4.9%.
See our latest analysis for Swire Pacific
Swire Pacific's Projected Earnings Seem Likely To Cover Future Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, the company's dividend was higher than its profits, and made up 78% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of HK$3.90 in 2015 to the most recent total annual payment of HK$3.35. The dividend has shrunk at around 1.5% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Swire Pacific's EPS has declined at around 12% a year. 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Swire Pacific's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Swire Pacific is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Swire Pacific that investors need to be conscious of moving forward. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.