WH Group's (HKG:288) Shareholders Will Receive A Bigger Dividend Than Last Year

WH Group Limited (HKG:288) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of May to $0.40. This will take the annual payment to 7.6% of the stock price, which is above what most companies in the industry pay.

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Estimates Indicate WH Group's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, WH Group was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 2.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach over 200%, which could put the dividend in jeopardy if the company's earnings don't improve.

View our latest analysis for WH Group

WH Group's Dividend Has Lacked Consistency

Looking back, WH Group's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the dividend has gone from $0.0161 total annually to $0.0642. This means that it has been growing its distributions at 17% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 2.7% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 2.7% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

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. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for WH Group you should be aware of, and 1 of them makes us a bit uncomfortable. 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.