Yip's Chemical Holdings Limited's (HKG:408) dividend will be increasing from last year's payment of the same period to HK$0.11 on 15th of July. This makes the dividend yield about the same as the industry average at 9.2%.
Yip's Chemical Holdings' Projections Indicate Future Payments May Be Unsustainable
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Yip's Chemical Holdings was paying out quite a large proportion of both earnings and cash flow, with the dividend being 169% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Looking forward, EPS could fall by 18.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 98%, which could put the dividend under pressure if earnings don't start to improve.
View our latest analysis for Yip's Chemical Holdings
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from HK$0.25 total annually to HK$0.14. Doing the maths, this is a decline of about 5.6% per year. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings per share has been sinking by 19% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Yip's Chemical Holdings will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Yip's Chemical Holdings has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. 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.