Guangdong Tapai Group (SZSE:002233) Is Paying Out A Larger Dividend Than Last Year

Guangdong Tapai Group Co., Ltd.'s (SZSE:002233) dividend will be increasing from last year's payment of the same period to CN¥0.50 on 30th of April. This takes the dividend yield to 6.6%, which shareholders will be pleased with.

See our latest analysis for Guangdong Tapai Group

Guangdong Tapai Group's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, Guangdong Tapai Group was paying out a very large proportion of what it was earning and 131% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 41.3% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was CN¥0.18, compared to the most recent full-year payment of CN¥0.50. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Guangdong Tapai Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 17% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Guangdong Tapai Group's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Guangdong Tapai Group that investors need to be conscious of moving forward. 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.