Groundhog Inc.'s (TWSE:6906) dividend is being reduced from last year's payment covering the same period to NT$3.00 on the 16th of August. Despite the cut, the dividend yield of 2.0% will still be comparable to other companies in the industry.
See our latest analysis for Groundhog
Groundhog Is Paying Out More Than It Is Earning
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Groundhog was paying out quite a large proportion of both earnings and cash flow, with the dividend being 104% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
EPS is set to fall by 26.8% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 176%, which could put the dividend in jeopardy if the company's earnings don't improve.
Groundhog Doesn't Have A Long Payment History
It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Has Limited Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Groundhog's EPS has fallen by approximately 27% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
Groundhog's Dividend Doesn't Look Sustainable
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 payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Groundhog (of which 1 is concerning!) 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.
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About TWSE:6906
Flawless balance sheet with solid track record.
