Yip's Chemical Holdings Limited (HKG:408) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of July to HK$0.11. This makes the dividend yield 9.9%, which is above the industry average.
Yip's Chemical Holdings' Future Dividends May Potentially Be At Risk
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, Yip's Chemical Holdings was paying out a very large proportion of what it was earning and 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.
EPS is set to fall by 18.5% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 98%, which is definitely a bit high to be sustainable going forward.
See our latest analysis for Yip's Chemical Holdings
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 annual payment during the last 10 years was HK$0.25 in 2015, and the most recent fiscal year payment was HK$0.14. This works out to be a decline of approximately 5.6% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
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. Earnings per share has been sinking by 19% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
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. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Yip's Chemical Holdings has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Yip's Chemical Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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