China Xinhua Education Group's (HKG:2779) Dividend Is Being Reduced To CN¥0.0632

China Xinhua Education Group Limited (HKG:2779) has announced that on 9th of July, it will be paying a dividend ofCN¥0.0632, which a reduction from last year's comparable dividend. However, the dividend yield of 8.7% is still a decent boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that China Xinhua Education Group's stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for China Xinhua Education Group

China Xinhua Education Group's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, China Xinhua Education Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 2.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

China Xinhua Education Group's Dividend Has Lacked Consistency

Looking back, China Xinhua Education Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the annual payment back then was CN¥0.0477, compared to the most recent full-year payment of CN¥0.0573. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

China Xinhua Education Group May Find It Hard To Grow The Dividend

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. However, China Xinhua Education Group has only grown its earnings per share at 2.4% per annum over the past five years. While growth may be thin on the ground, China Xinhua Education Group could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Even though the dividend was cut this year, we think China Xinhua Education Group has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for China Xinhua Education Group that you should be aware of before investing. Is China Xinhua Education Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.