Binjiang Service Group Co. Ltd.'s (HKG:3316) investors are due to receive a payment of CN¥0.876 per share on 7th of August. The dividend yield will be in the average range for the industry at 6.9%.
Binjiang Service Group's Projected Earnings Seem Likely To Cover Future Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Binjiang Service Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 108% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Earnings per share is forecast to rise by 13.9% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 92% which is a bit high but can definitely be sustainable.
See our latest analysis for Binjiang Service Group
Binjiang Service Group's Dividend Has Lacked Consistency
It's comforting to see that Binjiang Service Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 6 years was CN¥0.0877 in 2019, and the most recent fiscal year payment was CN¥1.64. This works out to be a compound annual growth rate (CAGR) of approximately 63% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Binjiang Service Group has seen EPS rising for the last five years, at 35% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Binjiang Service Group is not retaining those earnings to reinvest in growth.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Binjiang Service Group is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Binjiang Service Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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