Cheerwin Group (HKG:6601) Is Paying Out A Larger Dividend Than Last Year

Cheerwin Group Limited (HKG:6601) has announced that it will be increasing its dividend from last year's comparable payment on the 8th of July to CN¥0.0705. This will take the dividend yield to an attractive 8.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for Cheerwin Group

Cheerwin Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Cheerwin Group was paying out quite a large proportion of both earnings and cash flow, with the dividend being 115% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to fall by 2.4% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 90%, meaning that most of the company's earnings are being paid out to shareholders.

Cheerwin Group's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 3 years was CN¥0.044 in 2021, and the most recent fiscal year payment was CN¥0.128. This works out to be a compound annual growth rate (CAGR) of approximately 43% a year 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.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Cheerwin Group's earnings per share has fallen at approximately 6.0% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Cheerwin Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Cheerwin Group's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Cheerwin 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.