Pacific Textiles Holdings (HKG:1382) Is Paying Out A Larger Dividend Than Last Year

Pacific Textiles Holdings Limited (HKG:1382) will increase its dividend on the 2nd of September to HK$0.22. This will take the annual payment from 9.1% to 9.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Pacific Textiles Holdings

Pacific Textiles Holdings' Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. At the time of the last dividend payment, Pacific Textiles Holdings was paying out a very large proportion of what it was earning and 135% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 0.2% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was HK$0.34, compared to the most recent full-year payment of HK$0.44. This implies that the company grew its distributions at a yearly rate of about 2.6% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Pacific Textiles Holdings has seen earnings per share falling at 8.1% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Pacific Textiles Holdings' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Pacific Textiles Holdings will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 1 warning sign for Pacific Textiles Holdings that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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