Guotai Junan International Holdings (HKG:1788) Will Pay A Larger Dividend Than Last Year At HK$0.02

Guotai Junan International Holdings Limited (HKG:1788) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of June to HK$0.02. This makes the dividend yield about the same as the industry average at 3.6%.

Guotai Junan International Holdings' Projections Indicate Future Payments May Be Unsustainable

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Guotai Junan International Holdings' dividend made up quite a large proportion of earnings but only 22% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

If the company can't turn things around, EPS could fall by 20.8% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 99%, which is definitely a bit high to be sustainable going forward.

Check out our latest analysis for Guotai Junan International Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from HK$0.07 total annually to HK$0.04. The dividend has shrunk at around 5.4% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Guotai Junan International Holdings' EPS has declined at around 21% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Guotai Junan International Holdings' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Guotai Junan International Holdings has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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