Safety Godown Company (HKG:237) Has Announced That Its Dividend Will Be Reduced To HK$0.03

Safety Godown Company, Limited (HKG:237) is reducing its dividend from last year's comparable payment to HK$0.03 on the 18th of September. This means that the dividend yield is 2.5%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for Safety Godown Company

Safety Godown Company's Distributions May Be Difficult To Sustain

If it is predictable over a long period, even low dividend yields can be attractive. While Safety Godown Company is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

EPS has fallen by an average of 54.9% in the past, so this could continue over the next year. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.113 in 2013 to the most recent total annual payment of HK$0.05. This works out to be a decline of approximately 7.9% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Safety Godown Company's earnings per share has shrunk at 55% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Safety Godown Company'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 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 don't think Safety Godown Company is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Safety Godown Company that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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