Playmates Toys (HKG:869) Has Affirmed Its Dividend Of HK$0.02

Playmates Toys Limited (HKG:869) will pay a dividend of HK$0.02 on the 17th of April. The dividend yield is 3.2% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for Playmates Toys

Playmates Toys Doesn't Earn Enough To Cover Its Payments

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Playmates Toys' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, EPS could fall by 29.2% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 268%, which could put the dividend under pressure if earnings don't start to improve.

Playmates Toys' Dividend Has Lacked Consistency

Playmates Toys has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2014, the annual payment back then was HK$0.05, compared to the most recent full-year payment of HK$0.02. The dividend has shrunk at around 9.7% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Playmates Toys' EPS has fallen by approximately 29% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Playmates Toys' 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 payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 4 warning signs for Playmates Toys that you should be aware of before investing. Is Playmates Toys not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.