Guotai Junan International Holdings Limited (HKG:1788) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of June to HK$0.02. This takes the annual payment to 4.2% of the current stock price, which is about average for the industry.

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Guotai Junan International Holdings' Projections Indicate Future Payments May Be Unsustainable

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last payment made up 88% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

If the company can't turn things around, EPS could fall by 20.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 99%, which could put the dividend in jeopardy if the company's earnings don't improve.

Check out our latest analysis for Guotai Junan International Holdings

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was HK$0.07, compared to the most recent full-year payment of HK$0.04. The dividend has shrunk at around 5.4% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 21% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Our Thoughts On Guotai Junan International Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Guotai Junan International Holdings' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Guotai Junan International Holdings is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Guotai Junan International Holdings (of which 1 makes us a bit uncomfortable!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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