Henan Shuanghui Investment & DevelopmentLtd (SZSE:000895) Is Paying Out Less In Dividends Than Last Year

Henan Shuanghui Investment & Development Co.,Ltd.'s (SZSE:000895) dividend is being reduced by 12% to CN¥0.66 per share on 11th of September, in comparison to last year's comparable payment of CN¥0.75. The dividend yield of 6.2% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Henan Shuanghui Investment & DevelopmentLtd

Henan Shuanghui Investment & DevelopmentLtd's Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Henan Shuanghui Investment & DevelopmentLtd's dividend was only 54% of earnings, however it was paying out 101% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next 12 months is set to see EPS grow by 10.0%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 99%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from CN¥0.967 total annually to CN¥1.45. This means that it has been growing its distributions at 4.1% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

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. Henan Shuanghui Investment & DevelopmentLtd has seen earnings per share falling at 2.6% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Henan Shuanghui Investment & DevelopmentLtd's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Henan Shuanghui Investment & DevelopmentLtd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Henan Shuanghui Investment & DevelopmentLtd that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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