Safety Godown Company's (HKG:237) Shareholders Will Receive A Bigger Dividend Than Last Year

Safety Godown Company, Limited (HKG:237) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of September to HK$0.045. Even though the dividend went up, the yield is still quite low at only 3.6%.

View our latest analysis for Safety Godown Company

Safety Godown Company's Distributions May Be Difficult To Sustain

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. 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. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

EPS has fallen by an average of 17.5% in the past, so this could continue over the next year. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of HK$0.103 in 2014 to the most recent total annual payment of HK$0.07. Doing the maths, this is a decline of about 3.8% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

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. Safety Godown Company's earnings per share has shrunk at 17% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Safety Godown Company's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Safety Godown Company's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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 2 warning signs for Safety Godown Company (of which 1 is significant!) you should know about. 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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