The board of Yihai International Holding Ltd. (HKG:1579) has announced that it will pay a dividend on the 26th of June, with investors receiving CN¥0.4283 per share. This means that the annual payment will be 5.9% of the current stock price, which is in line with the average for the industry.
Yihai International Holding's Projected Earnings Seem Likely To Cover Future Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. At the time of the last dividend payment, Yihai International Holding was paying out a very large proportion of what it was earning and 114% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
EPS is set to grow by 34.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 94%, which is on the higher side, but certainly still feasible.
Check out our latest analysis for Yihai International Holding
Yihai International Holding's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of CN¥0.0498 in 2018 to the most recent total annual payment of CN¥0.79. This works out to be a compound annual growth rate (CAGR) of approximately 48% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
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. Unfortunately, Yihai International Holding's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Yihai International Holding's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
Yihai International Holding's Dividend Doesn't Look Sustainable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Yihai International Holding that you should be aware of before investing. 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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