Yihai International Holding Ltd. (HKG:1579) will pay a dividend of CN¥0.4283 on the 26th of June. However, the dividend yield of 6.3% still remains in a typical range for the industry.
Yihai International Holding's Future Dividend Projections Appear Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Yihai International Holding's dividend made up quite a large proportion of earnings but only of free cash flows. This leaves plenty of cash for reinvestment into the business.
EPS is set to grow by 36.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 93% - on the higher side, but we wouldn't necessarily say this is unsustainable.
View our latest analysis for Yihai International Holding
Yihai International Holding's Dividend Has Lacked Consistency
Yihai International Holding has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was CN¥0.0498 in 2018, and the most recent fiscal year payment was CN¥0.79. This implies that the company grew its distributions at a yearly rate of about 48% over that duration. 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.
Yihai International Holding May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Yihai International Holding hasn't seen much change in its earnings per share over the last five years. Slow growth and a high payout ratio could mean that Yihai International Holding has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Yihai International Holding that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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