Pacific Millennium Packaging Group's (HKG:1820) Shareholders Will Receive A Smaller Dividend Than Last Year

Pacific Millennium Packaging Group Corporation (HKG:1820) has announced it will be reducing its dividend payable on the 20th of July to HK$0.08. This means that the dividend yield is 2.6%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for Pacific Millennium Packaging Group

Pacific Millennium Packaging Group's Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Pacific Millennium Packaging Group was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Looking forward, could fall by 9.2% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 77% in the next 12 months which is on the higher end of the range we would say is sustainable.

Pacific Millennium Packaging Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2019, the first annual payment was CN¥0.088, compared to the most recent full-year payment of CN¥0.13. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Pacific Millennium Packaging Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that Pacific Millennium Packaging Group's earnings per share has fallen at approximately 9.2% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Pacific Millennium Packaging Group's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Pacific Millennium Packaging Group has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about. Is Pacific Millennium Packaging Group not quite the opportunity you were looking for? Why not check out our selection of top 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.