WH Group's (HKG:288) Dividend Will Be Increased To HK$0.14

WH Group Limited's (HKG:288) dividend will be increasing to HK$0.14 on 7th of July. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.

See our latest analysis for WH Group

WH Group Is Paying Out More Than It Is Earning

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, WH Group's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Earnings per share is forecast to rise by 39.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 163%, which probably can't continue putting some pressure on the balance sheet.

WH Group's Dividend Has Lacked Consistency

Looking back, WH Group's dividend hasn't been particularly consistent. 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 means that it has been growing its distributions at 7.0% per annum 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.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, WH Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, WH Group could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for WH Group that investors should take into consideration. 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.