Simple Mart Retail's (TWSE:2945) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Simple Mart Retail Co., Ltd. (TWSE:2945) has announced that it will be increasing its dividend by 64% on the 16th of August to NT$1.20, up from last year's comparable payment of NT$0.73. Even though the dividend went up, the yield is still quite low at only 1.7%.

See our latest analysis for Simple Mart Retail

Simple Mart Retail's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Simple Mart Retail was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Unless the company can turn things around, EPS could fall by 8.2% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 62%, which is definitely feasible to continue.

Simple Mart Retail's Dividend Has Lacked Consistency

Looking back, Simple Mart Retail's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the annual payment back then was NT$2.52, compared to the most recent full-year payment of NT$0.73. This works out to a decline of approximately 71% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Is Doubtful

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. In the last five years, Simple Mart Retail's earnings per share has shrunk at approximately 8.2% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Simple Mart Retail is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Simple Mart Retail (1 is a bit unpleasant!) that you should be aware of before investing. Is Simple Mart Retail 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.

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