Stock Analysis

How Does Giordano International Limited (HKG:709) Fare As A Dividend Stock?

SEHK:709
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Could Giordano International Limited (HKG:709) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

In this case, Giordano International likely looks attractive to investors, given its 5.1% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. Some simple analysis can reduce the risk of holding Giordano International for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Giordano International!

historic-dividend
SEHK:709 Historic Dividend January 19th 2021

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Although Giordano International pays a dividend, it was loss-making during the past year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Of the free cash flow it generated last year, Giordano International paid out 32% as dividends, suggesting the dividend is affordable.

While the above analysis focuses on dividends relative to a company's earnings, we do note Giordano International's strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on Giordano International every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Giordano International has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was HK$0.2 in 2011, compared to HK$0.06 last year. This works out to be a decline of approximately 9.0% per year over that time. Giordano International's dividend hasn't shrunk linearly at 9.0% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Giordano International for its dividend, given that payments have shrunk over the past 10 years.

Dividend 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. Giordano International's EPS have fallen by approximately 14% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Giordano International's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Giordano International's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, Giordano International has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Giordano International that investors should know about before committing capital to this stock.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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About SEHK:709

Giordano International

An investment holding company, engages in the retail and distribution of men’s, women’s, and children’s fashion apparel and accessories in Mainland China, Hong Kong, Macau, Taiwan, Southeast Asia and Australia, Gulf Cooperation Council, and internationally.

Flawless balance sheet with solid track record.