HiTech Group Australia's (ASX:HIT) Dividend Will Be A$0.05
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HiTech Group Australia's Payment Could Potentially Have Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, HiTech Group Australia is earning enough to cover the payment, but then it makes up 175% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share could rise by 11.5% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 64% by next year, which is in a pretty sustainable range.
Check out our latest analysis for HiTech Group Australia
HiTech Group Australia's Dividend Has Lacked Consistency
It's comforting to see that HiTech Group Australia has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 9 years was A$0.02 in 2016, and the most recent fiscal year payment was A$0.10. This means that it has been growing its distributions at 20% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
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. We are encouraged to see that HiTech Group Australia has grown earnings per share at 11% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On HiTech Group Australia's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for HiTech Group Australia that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
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