Could Qingling Motors Co., Ltd. (HKG:1122) be an attractive dividend share to own for the long haul? Investors are often drawn to a company for its dividend. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
In this case, Qingling Motors likely looks attractive to investors, given its 7.8% dividend yield and a payment history of over ten years. It’s likely that plenty of investors have purchased it for the income. There are a few simple ways to reduce the risks of buying Qingling Motors for its dividend, and we’ll go through these below.Explore this interactive chart for our latest analysis on Qingling Motors!
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. Looking at the data, we can see that 88% of Qingling Motors’s profits were paid out as dividends in the last 12 months. It’s paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.
We also measure dividends paid against a company’s levered free cash flow, to see if enough cash was generated to cover the dividend. Qingling Motors paid out 99% of its free cash last year. Cash flows can be lumpy, but paying out this much cash is not ideal.
With a strong net cash balance, Qingling Motors investors may not have much to worry about in the near term from a dividend perspective.
Consider getting our latest analysis on Qingling Motors’s financial position here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Qingling Motors has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past ten-year period, the first annual payment was CN¥0.05 in 2009, compared to CN¥0.16 last year. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Qingling Motors has grown its earnings per share at 4.1% per annum over the past five years. Qingling Motors’s earnings per share have barely grown, which is not ideal – perhaps this is why the company pays out the majority of its earnings to shareholders. That’s fine as far as it goes, but we’re less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, we think Qingling Motors has an acceptable payout ratio, although its dividend was not well covered by cashflow. Earnings growth has been limited, but we like that the dividend payments have been fairly consistent. Ultimately, Qingling Motors comes up short on our dividend analysis. It’s not that we think it is a bad company – just that there are likely more appealing dividend prospects out there on this analysis.
Are management backing themselves to deliver performance? Check their shareholdings in Qingling Motors in our latest insider ownership analysis.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.