Shine Justice Ltd (ASX:SHJ) has announced that it will be increasing its periodic dividend on the 7th of October to A$0.035, which will be 7.7% higher than last year's comparable payment amount of A$0.0325. This will take the annual payment to 5.1% of the stock price, which is above what most companies in the industry pay.
Shine Justice's Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Shine Justice was paying only paying out a fraction of earnings, but the payment was a massive 240% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
Over the next year, EPS is forecast to expand by 21.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.
Shine Justice's Dividend Has Lacked Consistency
Looking back, Shine Justice's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of A$0.0239 in 2013 to the most recent total annual payment of A$0.06. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Shine Justice 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.
Shine Justice Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Shine Justice has seen EPS rising for the last five years, at 9.0% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Overall, we always like to see the dividend being raised, but we don't think Shine Justice will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Shine Justice that investors need to be conscious of moving forward. 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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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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