Cheerwin Group (HKG:6601) Will Pay A Smaller Dividend Than Last Year

Cheerwin Group Limited's (HKG:6601) dividend is being reduced from last year's payment covering the same period to CN¥0.0571 on the 9th of October. The yield is still above the industry average at 5.3%.

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Cheerwin Group's Future Dividends May Potentially Be At Risk

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Cheerwin Group was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

Earnings per share is forecast to rise by 14.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 97%, which probably can't continue without putting some pressure on the balance sheet.

Check out our latest analysis for Cheerwin Group

Cheerwin Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of CN¥0.044 in 2021 to the most recent total annual payment of CN¥0.122. This means that it has been growing its distributions at 29% per annum over that time. Cheerwin Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Come By

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 Cheerwin Group's EPS has declined at around 7.4% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

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 don't think Cheerwin Group is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 1 warning sign for Cheerwin Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.