HRnetGroup Limited's (SGX:CHZ) dividend is being reduced by 12% to SGD0.0187 per share on 11th of September, in comparison to last year's comparable payment of SGD0.0213. The dividend yield of 5.0% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for HRnetGroup

HRnetGroup's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, HRnetGroup's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 10.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 61%, which is in the range that makes us comfortable with the sustainability of the dividend.

HRnetGroup Is Still Building Its Track Record

HRnetGroup's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2018, the annual payment back then was SGD0.023, compared to the most recent full-year payment of SGD0.0374. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that HRnetGroup's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On HRnetGroup's Dividend

Even though the dividend was cut this year, we think HRnetGroup has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for HRnetGroup that investors should take into consideration. Is HRnetGroup not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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