Ten Pao Group Holdings' (HKG:1979) Dividend Will Be Reduced To HK$0.033

Ten Pao Group Holdings Limited (HKG:1979) has announced that on 5th of July, it will be paying a dividend ofHK$0.033, which a reduction from last year's comparable dividend. The yield is still above the industry average at 5.8%.

View our latest analysis for Ten Pao Group Holdings

Ten Pao Group Holdings' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Ten Pao Group Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 71.8%. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

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 annual payment back then was HK$0.02, compared to the most recent full-year payment of HK$0.061. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Ten Pao Group Holdings has grown earnings per share at 13% per 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.

We Really Like Ten Pao Group Holdings' Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Ten Pao Group Holdings has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Ten Pao Group Holdings 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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