Greatview Aseptic Packaging Company Limited (HKG: 468) will pay a dividend of HK $ 0.14 on July 7. Based on this payment, the dividend yield on the shares of the company will be 7.2%, which is an attractive incentive for shareholder returns.
Check out our latest review for Greatview Aseptic Packaging
Greatview Aseptic Packaging does not earn enough to cover its payments
Awesome dividend yields are good, but it doesn’t matter much if the payouts can’t be sustained. Prior to this announcement, Greatview Aseptic Packaging’s dividend was a fairly large share of earnings, but only 67% of free cash flow. This leaves a lot of money to reinvest in the business.
The next 12 months are expected to see EPS increase by 8.6%. If the dividend continues at its recent price, the 12-month payout ratio could be 103%, which is a bit high and could start to put pressure on the balance sheet.
Greatview Aseptic Packaging dividend lacks consistency
Even in its relatively short history, the company has cut the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2012, the first annual payment was 0.16 CNY, compared to 0.22 CNY for the entire year. This means that the company has increased its distributions at an annual rate of approximately 3.5% during this time. The dividend has fluctuated in the past, so even though the dividend has been increased this year, we must remember that it has been reduced in the past.
Dividend growth prospects are limited
With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate a growing dividend in the future. Greatview Aseptic Packaging has not significantly changed its earnings per share over the past five years. Greatview Aseptic Packaging’s earnings per share barely rose, which isn’t ideal – perhaps that’s why the company pays the majority of its profits to shareholders. When a company prefers to pay cash to its shareholders instead of reinvesting it, that can often say a lot about that company’s dividend prospects.
In summary, while it is good to see that the dividend has not been reduced, we are a little cautious about the payments from Greatview Aseptic Packaging as there could be issues maintaining them going forward. Payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flow, it could prove to be reliable in the short term. We would be a little cautious to rely on this stock primarily for dividend income.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an irregular policy. However, there are other things for investors to consider when analyzing the performance of stocks. Taking the debate a little further, we have identified 1 warning sign for Greatview Aseptic Packaging that investors need to be aware of moving forward. Looking for more high yield dividend ideas? Try our organized list of good dividend payers.
When trading stocks or any other investment, use the platform seen by many as the trader’s gateway to the global market, Interactive brokers. You get the cheapest * trading in stocks, options, futures, currencies, bonds and funds worldwide from a single integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Annual Online Review 2020
Do you have any comments on this article? Concerned about the content? Get in touch with us directly. Otherwise, email the editorial team (at) simplywallst.com.