Zooming in on HKG:1543's 5.6% Dividend Yield

Is Guangdong Join-Share Financing Guarantee Investment Co., Ltd. (HKG:1543) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With a five-year payment history and a 5.6% yield, many investors probably find Guangdong Join-Share Financing Guarantee Investment intriguing. It sure looks interesting on these metrics - but there's always more to the story. The company also bought back stock during the year, equivalent to approximately 17% of the company's market capitalisation at the time. There are a few simple ways to reduce the risks of buying Guangdong Join-Share Financing Guarantee Investment for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Guangdong Join-Share Financing Guarantee Investment!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, Guangdong Join-Share Financing Guarantee Investment paid out 74% of its profit as dividends. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business - which could be good or bad.

We update our data on Guangdong Join-Share Financing Guarantee Investment every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Looking at the data, we can see that Guangdong Join-Share Financing Guarantee Investment has been paying a dividend for the past five years. During the past five-year period, the first annual payment was CN¥0.09 in 2016, compared to CN¥0.06 last year. The dividend has shrunk at around 6.7% a year during that period. Guangdong Join-Share Financing Guarantee Investment's dividend hasn't shrunk linearly at 6.7% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Guangdong Join-Share Financing Guarantee Investment for its dividend, given that payments have shrunk over the past five years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Guangdong Join-Share Financing Guarantee Investment's EPS have declined at around 12% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Guangdong Join-Share Financing Guarantee Investment's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Guangdong Join-Share Financing Guarantee Investment's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think Guangdong Join-Share Financing Guarantee Investment has an acceptable payout ratio. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. With this information in mind, we think Guangdong Join-Share Financing Guarantee Investment may not be an ideal dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Guangdong Join-Share Financing Guarantee Investment that investors should take into consideration.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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