WH Group (HKG:288) Is Increasing Its Dividend To HK$0.14

WH Group Limited's (HKG:288) dividend will be increasing to HK$0.14 on 7th of July. Based on the announced payment, the dividend yield for the company will be 3.8%, which is fairly typical for the industry.

Check out our latest analysis for WH Group

WH Group Is Paying Out More Than It Is Earning

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, WH Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 37.3%. If the dividend continues on its recent course, the payout ratio in 12 months could be 166%, which is a bit high and could start applying pressure to the balance sheet.

WH Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2016, the first annual payment was US$0.016, compared to the most recent full-year payment of US$0.024. This works out to be a compound annual growth rate (CAGR) of approximately 7.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that WH Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While EPS growth is quite low, WH Group has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On WH Group's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. As an example, we've identified 1 warning sign for WH Group that you should be aware of before investing. Is WH Group 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.