YGM Trading (HKG:375) Has Announced A Dividend Of HK$0.10

YGM Trading Limited (HKG:375) has announced that it will pay a dividend of HK$0.10 per share on the 22nd of October. The dividend yield will be 9.8% based on this payment which is still above the industry average.

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YGM Trading's Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. YGM Trading is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share could rise by 55.5% over the next year if the trend from the last few years continues. It's nice to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.

See our latest analysis for YGM Trading

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was HK$0.40 in 2015, and the most recent fiscal year payment was HK$0.10. The dividend has fallen 75% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that YGM Trading has grown earnings per share at 55% per year over the past five years. The company hasn't been turning a profit, but it running in the right direction. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for YGM Trading that investors need to be conscious of moving forward. Is YGM Trading 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.