Cheerwin Group's (HKG:6601) Shareholders Will Receive A Smaller Dividend Than Last Year

Cheerwin Group Limited's (HKG:6601) dividend is being reduced from last year's payment covering the same period to CN¥0.0251 on the 7th of July. The dividend yield will be in the average range for the industry at 2.7%.

See our latest analysis for Cheerwin Group

Cheerwin Group's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. At the time of the last dividend payment, Cheerwin Group was paying out a very large proportion of what it was earning and 97% 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.

Over the next year, EPS is forecast to expand by 143.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Cheerwin Group's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The payments haven't really changed that much since 2 years ago. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has Limited Growth Potential

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. Cheerwin Group's earnings per share has shrunk at 22% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Cheerwin Group's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Cheerwin Group that investors should know about before committing capital to this stock. 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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