Excellence Commercial Property & Facilities Management Group (HKG:6989) Will Pay A Smaller Dividend Than Last Year

Excellence Commercial Property & Facilities Management Group Limited (HKG:6989) has announced that on 29th of November, it will be paying a dividend ofCN¥0.1218, which a reduction from last year's comparable dividend. The dividend yield of 9.1% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Excellence Commercial Property & Facilities Management Group

Excellence Commercial Property & Facilities Management Group's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Excellence Commercial Property & Facilities Management Group was paying out quite a large proportion of both earnings and cash flow, with the dividend being 119% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Excellence Commercial Property & Facilities Management Group's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 2 years was CN¥0.0784 in 2021, and the most recent fiscal year payment was CN¥0.169. This implies that the company grew its distributions at a yearly rate of about 47% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. Earnings has been rising at 2.8% per annum over the last three years, which admittedly is a bit slow. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Excellence Commercial Property & Facilities Management Group'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 track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Excellence Commercial Property & Facilities Management Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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