Chinney Alliance Group (HKG:385) Is Reducing Its Dividend To HK$0.025

Chinney Alliance Group Limited (HKG:385) is reducing its dividend to HK$0.025 on the 5th of Julywhich is 9.1% less than last year's comparable payment of HK$0.0275. The dividend yield will be in the average range for the industry at 4.7%.

See our latest analysis for Chinney Alliance Group

Chinney Alliance Group Might Find It Hard To Continue The Dividend

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even though Chinney Alliance Group isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Recent, EPS has fallen by 27.8%, so this could continue over the next year. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from HK$0.03 total annually to HK$0.025. This works out to be a decline of approximately 1.8% 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 see if earnings per share is growing. Over the past five years, it looks as though Chinney Alliance Group's EPS has declined at around 28% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Chinney Alliance Group (of which 1 shouldn't be ignored!) you should know about. Is Chinney Alliance Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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