Yangtzekiang Garment (HKG:294) Is Due To Pay A Dividend Of HK$0.02

The board of Yangtzekiang Garment Limited (HKG:294) has announced that it will pay a dividend on the 16th of October, with investors receiving HK$0.02 per share. The dividend yield is 1.5% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for Yangtzekiang Garment

Yangtzekiang Garment's Distributions May Be Difficult To Sustain

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. While Yangtzekiang Garment is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. 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.

Looking forward, earnings per share could fall by 15.4% over the next year if the trend of the last few years can't be broken. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.

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. The dividend has gone from an annual total of HK$0.05 in 2013 to the most recent total annual payment of HK$0.02. Doing the maths, this is a decline of about 8.8% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Yangtzekiang Garment's EPS has declined at around 15% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Yangtzekiang Garment's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Yangtzekiang Garment (of which 1 can't be ignored!) you should know about. 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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