Readers hoping to buy Pacific Millennium Packaging Group Corporation (HKG:1820) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 8th of January in order to be eligible for this dividend, which will be paid on the 23rd of January.
Pacific Millennium Packaging Group's next dividend payment will be HK$0.15 per share, which looks like a nice increase on last year, when the company distributed a total of HK$0.088 to shareholders. If you buy this business for its dividend, you should have an idea of whether Pacific Millennium Packaging Group's dividend is reliable and sustainable. So we need to investigate whether Pacific Millennium Packaging Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Pacific Millennium Packaging Group paid out a comfortable 33% of its profit last year. A useful secondary check can be to evaluate whether Pacific Millennium Packaging Group generated enough free cash flow to afford its dividend. Luckily it paid out just 1.7% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Pacific Millennium Packaging Group's earnings per share have risen 16% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Pacific Millennium Packaging Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Given that Pacific Millennium Packaging Group has only been paying a dividend for a year, there's not much of a past history to draw insight from.
From a dividend perspective, should investors buy or avoid Pacific Millennium Packaging Group? We love that Pacific Millennium Packaging Group is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.
Want to learn more about Pacific Millennium Packaging Group's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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