Goldpac Group (HKG:3315) Has Announced That Its Dividend Will Be Reduced To HK$0.10

Goldpac Group Limited (HKG:3315) has announced it will be reducing its dividend payable on the 30th of June to HK$0.10. The dividend yield of 6.1% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Goldpac Group

Goldpac Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Goldpac Group's dividend was only 61% of earnings, however it was paying out 99% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, could fall by 7.4% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 82%, which is definitely on the higher side.

Goldpac Group's Dividend Has Lacked Consistency

Looking back, Goldpac Group's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the first annual payment was CN¥0.038, compared to the most recent full-year payment of CN¥0.14. This means that it has been growing its distributions at 17% per annum over that time. Goldpac Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Goldpac Group's earnings per share has fallen at approximately 7.4% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Goldpac Group (of which 1 is significant!) you should know about. Is Goldpac Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.