Ten Pao Group Holdings' (HKG:1979) Dividend Will Be Reduced To HK$0.028

Ten Pao Group Holdings Limited (HKG:1979) has announced that on 25th of October, it will be paying a dividend ofHK$0.028, which a reduction from last year's comparable dividend. The dividend yield of 6.5% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Ten Pao Group Holdings

Ten Pao Group Holdings' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Ten Pao Group Holdings' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 117.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 15%, which is in the range that makes us comfortable with the sustainability of the dividend.

Ten Pao Group Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from HK$0.02 total annually to HK$0.084. This means that it has been growing its distributions at 27% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Ten Pao Group Holdings Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Ten Pao Group Holdings has been growing its earnings per share at 8.1% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Ten Pao Group Holdings' prospects of growing its dividend payments in the future.

Our Thoughts On Ten Pao Group Holdings' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Ten Pao Group Holdings is earning enough to cover the payments, the cash flows are lacking. We don't think Ten Pao Group Holdings 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. 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 Ten Pao Group Holdings that investors should take into consideration. Is Ten Pao Group Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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