Taste Gourmet Group (HKG:8371) Has Announced That Its Dividend Will Be Reduced To HK$0.016

Taste Gourmet Group Limited (HKG:8371) is reducing its dividend from last year's comparable payment to HK$0.016 on the 25th of August. The dividend yield of 6.2% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Taste Gourmet Group

Taste Gourmet Group Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Taste Gourmet Group's dividend made up quite a large proportion of earnings but only 24% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 3.3% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 99%, which probably can't continue without starting to put some pressure on the balance sheet.

Taste Gourmet 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 HK$0.022 in 2018, and the most recent fiscal year payment was HK$0.056. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 3.3% per year. Slow growth and a high payout ratio could mean that Taste Gourmet Group has maxed out the amount that it has been able to pay to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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 don't think Taste Gourmet Group is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Taste Gourmet Group that you should be aware of before investing. 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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