Chow Tai Fook Jewellery Group (HKG:1929) Will Pay A Dividend Of HK$0.25

Chow Tai Fook Jewellery Group Limited (HKG:1929) will pay a dividend of HK$0.25 on the 22nd of December. The payment will take the dividend yield to 4.5%, which is in line with the average for the industry.

View our latest analysis for Chow Tai Fook Jewellery Group

Chow Tai Fook Jewellery Group Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Chow Tai Fook Jewellery Group was paying out 80% of earnings, but a comparatively small 29% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Earnings per share is forecast to rise by 56.9% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 130% over the next year.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was HK$0.12, compared to the most recent full-year payment of HK$0.50. This means that it has been growing its distributions at 15% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Chow Tai Fook Jewellery Group's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Chow Tai Fook Jewellery Group has been growing its earnings per share at 9.2% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On Chow Tai Fook Jewellery Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Chow Tai Fook Jewellery Group will make a great income stock. 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 probably look elsewhere for an income investment.

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 example, we've picked out 2 warning signs for Chow Tai Fook Jewellery Group that investors should know about before committing capital to this stock. Is Chow Tai Fook Jewellery Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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