China Xinhua Education Group's (HKG:2779) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of China Xinhua Education Group Limited (HKG:2779) has announced that it will be increasing its dividend on the 6th of July to HK$0.11. This takes the dividend yield from 7.0% to 7.3%, which shareholders will be pleased with.

Check out our latest analysis for China Xinhua Education Group

China Xinhua Education Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, China Xinhua Education Group was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 8.9% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

China Xinhua Education Group Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The first annual payment during the last 3 years was CN¥0.048 in 2019, and the most recent fiscal year payment was CN¥0.088. This means that it has been growing its distributions at 23% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

We Could See China Xinhua Education Group's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. China Xinhua Education Group has impressed us by growing EPS at 8.9% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like China Xinhua Education Group's Dividend

Overall, a dividend increase is always good, and we think that China Xinhua Education Group is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for China Xinhua Education Group that investors should know about before committing capital to this stock. 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.