Tsaker Chemical Group (HKG:1986) Has Announced That Its Dividend Will Be Reduced To HK$0.047

By
Simply Wall St
Published
August 22, 2021
SEHK:1986
Source: Shutterstock

Tsaker Chemical Group Limited (HKG:1986) is reducing its dividend to HK$0.047 on the 21st of September. However, the dividend yield of 3.7% still remains in a typical range for the industry.

Check out our latest analysis for Tsaker Chemical Group

Tsaker Chemical Group's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, Tsaker Chemical Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 4.0% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 66%, which is definitely feasible to continue.

historic-dividend
SEHK:1986 Historic Dividend August 23rd 2021

Tsaker Chemical Group's Dividend Has Lacked Consistency

Tsaker Chemical Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The first annual payment during the last 5 years was CN¥0.031 in 2016, and the most recent fiscal year payment was CN¥0.078. This means that it has been growing its distributions at 20% per annum over that time. Tsaker Chemical 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.

The Dividend's Growth Prospects Are Limited

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 Tsaker Chemical Group's earnings per share has fallen at approximately 4.0% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

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. For instance, we've picked out 4 warning signs for Tsaker Chemical Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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