Stock Analysis

Yue Yuen Industrial (Holdings) (HKG:551) Is Reducing Its Dividend To $0.20

SEHK:551
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Yue Yuen Industrial (Holdings) Limited (HKG:551) has announced that on 6th of October, it will be paying a dividend of$0.20, which a reduction from last year's comparable dividend. The dividend yield of 8.7% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Yue Yuen Industrial (Holdings)

Yue Yuen Industrial (Holdings) Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Yue Yuen Industrial (Holdings)'s dividend made up quite a large proportion of earnings but only 25% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 77.1%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

historic-dividend
SEHK:551 Historic Dividend August 18th 2023

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 2013, the dividend has gone from $0.129 total annually to $0.115. This works out to be a decline of approximately 1.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Yue Yuen Industrial (Holdings)'s EPS has fallen by approximately 13% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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 Yue Yuen Industrial (Holdings)'s Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Yue Yuen Industrial (Holdings) that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

About SEHK:551

Yue Yuen Industrial (Holdings)

An investment holding company, manufactures and sells athletic, athleisure, casual, and outdoor footwear in the People’s Republic of China, rest of Asia, the United States, Europe, and internationally.

Flawless balance sheet and undervalued.

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