BAIC Motor (HKG:1958) Has Announced That It Will Be Increasing Its Dividend To HK$0.19

BAIC Motor Corporation Limited (HKG:1958) will increase its dividend on the 15th of September to HK$0.19. This will take the annual payment from 7.2% to 7.2% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for BAIC Motor

BAIC Motor's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, BAIC Motor was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 16.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.

BAIC Motor's Dividend Has Lacked Consistency

BAIC Motor has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2015, the first annual payment was CN¥0.30, compared to the most recent full-year payment of CN¥0.16. The dividend has shrunk at around 8.6% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Is Doubtful

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though BAIC Motor's EPS has declined at around 9.3% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On BAIC Motor's Dividend

In summary, while it's always good to see the dividend being raised, we don't think BAIC Motor's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 1 warning sign for BAIC Motor 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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