Bright Smart Securities & Commodities Group Limited (HKG:1428) is reducing its dividend to HK$0.10 on the 9th of Septemberwhich is 23% less than last year. The yield is still above the industry average at 7.0%.
Bright Smart Securities & Commodities Group's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Bright Smart Securities & Commodities Group's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share could rise by 15.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from HK$0.018 to HK$0.13. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Bright Smart Securities & Commodities Group has impressed us by growing EPS at 16% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like Bright Smart Securities & Commodities Group's Dividend
In general, we don't like to see the dividend being cut, especially when the company has such high potential like Bright Smart Securities & Commodities Group does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Bright Smart Securities & Commodities Group that investors need to be conscious of moving forward. Is Bright Smart Securities & Commodities Group 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.