Yahoo Finance Should You Or Shouldn't You: A Dividend Analysis on Shenguan Holdings (Group) Limited (HKG:829)
Is Shenguan Holdings (Group) Limited (HKG:829) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
A high yield and a long history of paying dividends is an appealing combination for Shenguan Holdings (Group). It would not be a surprise to discover that many investors buy it for the dividends. Some simple research can reduce the risk of buying Shenguan Holdings (Group) for its dividend - read on to learn more.
Explore this interactive chart for our latest analysis on Shenguan Holdings (Group)!
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, Shenguan Holdings (Group) paid out 77% of its profit as dividends. It's paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Shenguan Holdings (Group)'s cash payout ratio last year was 12%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's positive to see that Shenguan Holdings (Group)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
With a strong net cash balance, Shenguan Holdings (Group) investors may not have much to worry about in the near term from a dividend perspective.
Remember, you can always get a snapshot of Shenguan Holdings (Group)'s latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Shenguan Holdings (Group) has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was CN¥0.02 in 2010, compared to CN¥0.018 last year. The dividend has shrunk at a rate of less than 1% a year over this period.
A shrinking dividend over a ten-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Shenguan Holdings (Group)'s EPS have declined at around 32% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Shenguan Holdings (Group)'s earnings per share, which support the dividend, have been anything but stable.
Conclusion
To summarise, shareholders should always check that Shenguan Holdings (Group)'s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Shenguan Holdings (Group)'s payout ratios are within a normal range for the average corporation, and we like that its cashflow was stronger than reported profits. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. Ultimately, Shenguan Holdings (Group) comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Shenguan Holdings (Group) (of which 1 doesn't sit too well with us!) you should know about.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
This article by Simply Wall St is general in nature. 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. Thank you for reading.
