Guotai Junan International Holdings' (HKG:1788) Upcoming Dividend Will Be Larger Than Last Year's

Guotai Junan International Holdings Limited's (HKG:1788) dividend will be increasing from last year's payment of the same period to HK$0.05 on 30th of September. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Guotai Junan International Holdings' stock price has increased by 409% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Guotai Junan International Holdings' Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Guotai Junan International Holdings' dividend made up quite a large proportion of earnings but only 55% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

If the company can't turn things around, EPS could fall by 6.6% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 92% in the next 12 months which is on the higher end of the range we would say is sustainable.

View our latest analysis for Guotai Junan International Holdings

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from HK$0.07 total annually to HK$0.10. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Is Doubtful

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. Over the past five years, it looks as though Guotai Junan International Holdings' EPS has declined at around 6.6% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Guotai Junan International Holdings that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.