China Kepei Education Group (HKG:1890) Will Pay A Dividend Of CN¥0.06

The board of China Kepei Education Group Limited (HKG:1890) has announced that it will pay a dividend on the 31st of August, with investors receiving CN¥0.06 per share. This means the annual payment is 5.5% of the current stock price, which is above the average for the industry.

View our latest analysis for China Kepei Education Group

China Kepei Education Group's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, China Kepei Education Group's 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.

The next year is set to see EPS grow by 36.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 13% by next year, which is in a pretty sustainable range.

China Kepei Education Group's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 4 years was CN¥0.0877 in 2018, and the most recent fiscal year payment was CN¥0.108. This works out to be a compound annual growth rate (CAGR) of approximately 5.4% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. China Kepei Education Group's EPS has fallen by approximately 35% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about China Kepei Education Group's payments, as there could be some issues with sustaining them into the future. 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 probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 1 warning sign for China Kepei Education Group that investors need to be conscious of moving forward. Is China Kepei Education Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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