GP Industries Limited (SGX:G20) is reducing its dividend to SGD0.015 on the 22nd of Augustwhich is 25% less than last year's comparable payment of SGD0.02. However, the dividend yield of 4.0% is still a decent boost to shareholder returns.
Check out our latest analysis for GP Industries
GP Industries' Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, GP Industries was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Unless the company can turn things around, EPS could fall by 1.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 53%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was SGD0.03, compared to the most recent full-year payment of SGD0.025. The dividend has shrunk at around 1.8% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that GP Industries' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
In Summary
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. We don't think GP Industries 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for GP Industries (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About SGX:G20
GP Industries
An investment holding company, develops, manufactures, and markets batteries and related products in Singapore and internationally.
Low and slightly overvalued.
