WH Group (HKG:288) Is Paying Out A Larger Dividend Than Last Year
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.
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WH Group Doesn't Earn Enough To Cover Its Payments
Solid dividend yields are great, but they only really help us if the payment is sustainable. 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.
Earnings per share is forecast to rise by 36.4% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 167% over the next year.
WH Group's Dividend Has Lacked Consistency
Looking back, WH Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from US$0.016 to US$0.024. This works out to be a compound annual growth rate (CAGR) of approximately 7.1% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
WH Group May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. WH Group hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, WH Group could always pay out a higher proportion of earnings to increase shareholder returns.
Our Thoughts On WH Group's Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. 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.
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. For instance, we've picked out 1 warning sign for WH Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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About SEHK:288
WH Group
An investment holding company, engages in the production, trading, wholesale, and retail sale of meat products in China, the United States, Mexico, and Europe.
Flawless balance sheet and undervalued.