Bright Smart Securities & Commodities Group's (HKG:1428) Shareholders Will Receive A Smaller Dividend Than Last Year

Bright Smart Securities & Commodities Group Limited (HKG:1428) has announced it will be reducing its dividend payable on the 9th of September to HK$0.13. However, the dividend yield of 7.6% is still a decent boost to shareholder returns.

See our latest analysis for Bright Smart Securities & Commodities Group

Bright Smart Securities & Commodities Group's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Bright Smart Securities & Commodities Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 16.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was HK$0.018 in 2011, and the most recent fiscal year payment was HK$0.13. This works out to be a compound annual growth rate (CAGR) of approximately 22% 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 Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see Bright Smart Securities & Commodities Group has been growing its earnings per share at 17% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Bright Smart Securities & Commodities Group is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Bright Smart Securities & Commodities Group has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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