Global International Credit Group (HKG:1669) Is Reducing Its Dividend To HK$0.051

The board of Global International Credit Group Limited (HKG:1669) has announced that the dividend on 20th of June will be reduced by 3.8% from last year's HK$0.053 to HK$0.051. The dividend yield of 9.8% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Global International Credit Group

Global International Credit Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Global International Credit Group's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 4.2% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 41%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Global International Credit Group's Dividend Has Lacked Consistency

Looking back, Global International Credit Group's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was HK$0.027, compared to the most recent full-year payment of HK$0.051. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Global International Credit Group might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Global International Credit Group has seen earnings per share falling at 4.2% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

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. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Global International Credit Group (of which 1 is potentially serious!) you should know about. Is Global International Credit Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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