Giordano International Limited's (HKG:709) dividend is being reduced from last year's payment covering the same period to HK$0.06 on the 20th of June. However, the dividend yield of 9.4% is still a decent boost to shareholder returns.
Giordano International's Payment Could Potentially Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Giordano International's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Earnings per share is forecast to rise by 6.2% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 94% which is a bit high but can definitely be sustainable.
Check out our latest analysis for Giordano International
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of HK$0.25 in 2015 to the most recent total annual payment of HK$0.14. The dividend has shrunk at around 5.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
Giordano International May Find It Hard To Grow The Dividend
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Although it's important to note that Giordano International's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
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 company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Giordano International that investors need to be conscious of moving forward. Is Giordano International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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