Tian Chang Group Holdings (HKG:2182) Is Reducing Its Dividend To HK$0.015

The board of Tian Chang Group Holdings Ltd. (HKG:2182) has announced it will be reducing its dividend by 25% from last year's payment of HK$0.02 on the 28th of June, with shareholders receiving HK$0.015. This means that the annual payment is 4.8% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Tian Chang Group Holdings

Tian Chang Group Holdings' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Tian Chang Group Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, EPS could fall by 21.6% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 41%, which is definitely feasible to continue.

Tian Chang Group Holdings' Dividend Has Lacked Consistency

Tian Chang Group Holdings has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 5 years was HK$0.03 in 2019, and the most recent fiscal year payment was HK$0.02. Doing the maths, this is a decline of about 7.8% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 22% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

In Summary

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 haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Tian Chang Group Holdings (of which 1 is a bit concerning!) you should know about. Is Tian Chang Group Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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