Here's What You Should Know About Golik Holdings Limited's (HKG:1118) 2.9% Dividend Yield

Is Golik Holdings Limited (HKG:1118) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

A 2.9% yield is nothing to get excited about, but investors probably think the long payment history suggests Golik Holdings has some staying power. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Explore this interactive chart for our latest analysis on Golik Holdings!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Golik Holdings paid out 38% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Golik Holdings paid out 1.3% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Remember, you can always get a snapshot of Golik Holdings' latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Golik Holdings has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was HK$0.03 in 2011, compared to HK$0.02 last year. The dividend has shrunk at around 2.2% a year during that period. Golik Holdings' dividend hasn't shrunk linearly at 2.2% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Golik Holdings for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Golik Holdings' EPS have fallen by approximately 23% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Golik Holdings' earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Golik Holdings' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. It's great to see that Golik Holdings is paying out a low percentage of its earnings and cash flow. Earnings per share are down, and Golik Holdings' dividend has been cut at least once in the past, which is disappointing. In sum, we find it hard to get excited about Golik Holdings from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.

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 example, we've identified 4 warning signs for Golik Holdings (2 are concerning!) that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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.
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