HiTech Group Australia (ASX:HIT) Is Paying Out A Dividend Of A$0.05

HiTech Group Australia Limited (ASX:HIT) will pay a dividend of A$0.05 on the 17th of September. The dividend yield will be 5.3% based on this payment which is still above the industry average.

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HiTech Group Australia's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, HiTech Group Australia's dividend was only 66% of earnings, however it was paying out 175% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS could expand by 11.5% if recent trends continue. If the dividend continues on this path, the payout ratio could be 64% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for HiTech Group Australia

HiTech Group Australia's Dividend Has Lacked Consistency

It's comforting to see that HiTech Group Australia has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of A$0.02 in 2016 to the most recent total annual payment of A$0.10. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. HiTech Group Australia has seen EPS rising for the last five years, at 11% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On HiTech Group Australia's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While HiTech Group Australia is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for HiTech Group Australia that investors should take into consideration. 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.