It looks like Xinyi Solar Holdings Limited (HKG:968) is about to go ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 18th of August will not receive this dividend, which will be paid on the 23rd of September.
Xinyi Solar Holdings’s upcoming dividend is HK$0.085 a share, following on from the last 12 months, when the company distributed a total of HK$0.14 per share to shareholders. Looking at the last 12 months of distributions, Xinyi Solar Holdings has a trailing yield of approximately 1.6% on its current stock price of HK$8.99. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Xinyi Solar Holdings
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Xinyi Solar Holdings paid out a comfortable 48% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 403% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Xinyi Solar Holdings is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
While Xinyi Solar Holdings’s dividends were covered by the company’s reported profits, cash is somewhat more important, so it’s not great to see that the company didn’t generate enough cash to pay its dividend. Cash is king, as they say, and were Xinyi Solar Holdings to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s comforting to see Xinyi Solar Holdings’s earnings have been skyrocketing, up 33% per annum for the past five years. Earnings have been growing quickly, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Xinyi Solar Holdings has delivered an average of 41% per year annual increase in its dividend, based on the past six years of dividend payments. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Has Xinyi Solar Holdings got what it takes to maintain its dividend payments? We’re glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it’s not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, Xinyi Solar Holdings looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
So while Xinyi Solar Holdings looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. To help with this, we’ve discovered 2 warning signs for Xinyi Solar Holdings that you should be aware of before investing in their shares.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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