Yadea Group Holdings Ltd. (HKG:1585) has announced that on 16th of July, it will be paying a dividend ofCN¥0.45, which a reduction from last year's comparable dividend. This means that the dividend yield is 1.6%, which is a bit low when comparing to other companies in the industry.
Yadea Group Holdings' Future Dividend Projections Appear Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Yadea Group Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 44%, which makes us pretty comfortable with the sustainability of the dividend.
View our latest analysis for Yadea Group Holdings
Yadea Group Holdings' Dividend Has Lacked Consistency
Looking back, Yadea Group Holdings' dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of CN¥0.0321 in 2017 to the most recent total annual payment of CN¥0.205. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Yadea Group Holdings 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.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Yadea Group Holdings has seen EPS rising for the last five years, at 20% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
We Really Like Yadea Group Holdings' Dividend
In general, we don't like to see the dividend being cut, especially when the company has such high potential like Yadea Group Holdings does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an 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. As an example, we've identified 1 warning sign for Yadea Group Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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