Trio Industrial Electronics Group Limited's (HKG:1710) dividend will be increasing on the 5th of July to HK$0.012, with investors receiving 50% more than last year. This will take the dividend yield to an attractive 8.1%, providing a nice boost to shareholder returns.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Trio Industrial Electronics Group's stock price has increased by 44% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Trio Industrial Electronics Group Doesn't Earn Enough To Cover Its Payments
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Trio Industrial Electronics Group was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
If the company can't turn things around, EPS could fall by 31.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 152%, which could put the dividend in jeopardy if the company's earnings don't improve.
Trio Industrial Electronics Group's Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from HK$0.02 in 2018 to the most recent annual payment of HK$0.024. This implies that the company grew its distributions at a yearly rate of about 6.3% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Trio Industrial Electronics Group might have put its house in order since then, but we remain cautious.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 32% over the last three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
In summary, while it's always good to see the dividend being raised, we don't think Trio Industrial Electronics Group's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to it. We don't think Trio Industrial Electronics Group is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Trio Industrial Electronics Group you should be aware of, and 1 of them shouldn't be ignored. We have also put together a list of global stocks with a solid dividend.
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