GDH Guangnan (Holdings) Limited (HKG:1203) will pay a dividend of HK$0.01 on the 25th of October. The dividend yield will be 3.6% based on this payment which is still above the industry average.
GDH Guangnan (Holdings)'s Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. GDH Guangnan (Holdings) is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share could rise by 7.8% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2011, the dividend has gone from HK$0.05 to HK$0.025. This works out to be a decline of approximately 6.7% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
We Could See GDH Guangnan (Holdings)'s Dividend Growing
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. GDH Guangnan (Holdings) has seen EPS rising for the last five years, at 7.8% per annum. GDH Guangnan (Holdings) definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Our Thoughts On GDH Guangnan (Holdings)'s Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for GDH Guangnan (Holdings) (of which 2 are a bit concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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