Goldpac Group Limited (HKG:3315) has announced that on 18th of June, it will be paying a dividend ofCN¥0.055, which a reduction from last year's comparable dividend. The yield is still above the industry average at 5.8%.
Goldpac Group's Projections Indicate Future Payments May Be Unsustainable
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 81% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.
Looking forward, EPS could fall by 21.7% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 112%, which is definitely a bit high to be sustainable going forward.
Check out our latest analysis for Goldpac Group
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of CN¥0.08 in 2015 to the most recent total annual payment of CN¥0.051. This works out to be a decline of approximately 4.4% 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
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. Goldpac Group's earnings per share has shrunk at 22% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
In Summary
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 don't think Goldpac Group is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Goldpac Group (1 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.