Should You Buy Bauhaus International (Holdings) Limited (HKG:483) For Its 8.8% Dividend?

Could Bauhaus International (Holdings) Limited (HKG:483) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. 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.

With Bauhaus International (Holdings) yielding 8.8% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. We'd guess that plenty of investors have purchased it for the income. There are a few simple ways to reduce the risks of buying Bauhaus International (Holdings) for its dividend, and we'll go through these below.

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Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, 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. While Bauhaus International (Holdings) pays a dividend, it reported a loss over the last year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Bauhaus International (Holdings)'s cash payout ratio last year was 8.9%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.

With a strong net cash balance, Bauhaus International (Holdings) investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Bauhaus International (Holdings) every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Bauhaus International (Holdings) has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was HK$0.2 in 2011, compared to HK$0.05 last year. This works out to a decline of approximately 68% over that time.

We struggle to make a case for buying Bauhaus International (Holdings) for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Bauhaus International (Holdings)'s earnings per share have shrunk at 66% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Bauhaus International (Holdings)'s earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Bauhaus International (Holdings)'s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that Bauhaus International (Holdings) paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. With this information in mind, we think Bauhaus International (Holdings) may not be an ideal dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Bauhaus International (Holdings) (of which 1 is a bit unpleasant!) you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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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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