China Xinhua Education Group Limited (HKG:2779) is reducing its dividend from last year's comparable payment to CN¥0.0632 on the 9th of July. The dividend yield of 8.4% is still a nice boost to shareholder returns, despite the cut.
View our latest analysis for China Xinhua Education Group
China Xinhua Education Group's Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, China Xinhua Education Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
If the trend of the last few years continues, EPS will grow by 2.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.
China Xinhua Education Group's Dividend Has Lacked Consistency
Looking back, China Xinhua Education Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the dividend has gone from CN¥0.0477 total annually to CN¥0.0573. This means that it has been growing its distributions at 3.7% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Dividend's Growth Prospects Are Limited
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. Earnings has been rising at 2.4% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, China Xinhua Education Group could always pay out a higher proportion of earnings to increase shareholder returns.
Our Thoughts On China Xinhua Education Group's Dividend
Overall, we think that China Xinhua Education Group could make a reasonable income stock, even though it did cut the dividend this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 China Xinhua Education Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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