First Pacific (HKG:142) Will Pay A Larger Dividend Than Last Year At $0.135

First Pacific Company Limited (HKG:142) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of July to $0.135. Despite this raise, the dividend yield of 4.5% is only a modest boost to shareholder returns.

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First Pacific's Projections Indicate Future Payments May Be Unsustainable

Even a low dividend yield can be attractive if it is sustained for years on end. However, First Pacific's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next 12 months is set to see EPS grow by 30.7%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 144% over the next year.

View our latest analysis for First Pacific

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was $0.027, compared to the most recent full-year payment of $0.0327. This means that it has been growing its distributions at 1.9% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. First Pacific has impressed us by growing EPS at 45% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like First Pacific's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, First Pacific has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.