Taste Gourmet Group's (HKG:8371) Shareholders Will Receive A Smaller Dividend Than Last Year

Taste Gourmet Group Limited (HKG:8371) has announced it will be reducing its dividend payable on the 25th of August to HK$0.016. This means the annual payment is 5.4% of the current stock price, which is above the average for the industry.

View our latest analysis for Taste Gourmet Group

Taste Gourmet Group Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Taste Gourmet Group's dividend made up quite a large proportion of earnings but only 24% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to grow by 3.3% over the next year if recent trends continue. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 99% over the next year.

Taste Gourmet Group's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2018, the dividend has gone from HK$0.022 to HK$0.056. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. 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.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. 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. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 3 warning signs for Taste Gourmet Group that investors should know about before committing capital to this stock. 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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