First Pacific's (HKG:142) Shareholders Will Receive A Bigger Dividend Than Last Year

First Pacific Company Limited (HKG:142) will increase its dividend from last year's comparable payment on the 3rd of July to $0.135. The payment will take the dividend yield to 5.4%, which is in line with the average for the industry.

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First Pacific's Projections Indicate Future Payments May Be Unsustainable

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, First Pacific's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand 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

Although the company has a long dividend history, it has been cut 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 works out to be a compound annual growth rate (CAGR) of approximately 1.9% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. First Pacific has impressed us by growing EPS at 45% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like First Pacific's Dividend

Overall, a dividend increase is always good, and we think that First Pacific is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for First Pacific you should be aware of, and 1 of them is a bit concerning. Is First Pacific not quite the opportunity you were looking for? Why not check out our selection of top 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.