Computime Group's (HKG:320) Dividend Will Be Reduced To HK$0.021

Computime Group Limited's (HKG:320) dividend is being reduced from last year's payment covering the same period to HK$0.021 on the 9th of October. The yield is still above the industry average at 5.8%.

View our latest analysis for Computime Group

Computime Group Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Computime Group was paying out 79% of earnings, but a comparatively small 7.6% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, EPS could fall by 29.3% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 115%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of HK$0.018 in 2013 to the most recent total annual payment of HK$0.021. This implies that the company grew its distributions at a yearly rate of about 1.6% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 29% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Our Thoughts On Computime Group's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Computime Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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