Safety Godown Company (HKG:237) Is Increasing Its Dividend To HK$0.05

The board of Safety Godown Company, Limited (HKG:237) has announced that it will be increasing its dividend by 11% on the 17th of September to HK$0.05, up from last year's comparable payment of HK$0.045. This takes the annual payment to 3.8% of the current stock price, which unfortunately is below what the industry is paying.

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Safety Godown Company's Distributions May Be Difficult To Sustain

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Safety Godown Company is unprofitable despite paying a dividend, and it is paying out 336% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Over the next year, EPS could expand by 15.6% if recent trends continue. This is the right direction to be moving, but it is probably not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Check out our latest analysis for Safety Godown Company

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was HK$0.15 in 2015, and the most recent fiscal year payment was HK$0.08. This works out to be a decline of approximately 6.1% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Safety Godown Company has impressed us by growing EPS at 16% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.

Safety Godown Company's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Safety Godown Company will make a great income stock. Strong earnings growth means Safety Godown Company has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Safety Godown Company that you should be aware of before investing. Is Safety Godown Company not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.