China YuHua Education Corporation Limited (HKG:6169) has announced that it will be increasing its dividend on the 24th of June to HK$0.12. This makes the dividend yield 2.7%, which is above the industry average.
China YuHua Education's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, China YuHua Education was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 38.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which is in the range that makes us comfortable with the sustainability of the dividend.
China YuHua Education Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2017, the first annual payment was CN¥0.065, compared to the most recent full-year payment of CN¥0.20. This means that it has been growing its distributions at 33% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see China YuHua Education has been growing its earnings per share at 34% a year over the past three years. China YuHua Education is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
We Really Like China YuHua Education's Dividend
Overall, a dividend increase is always good, and we think that China YuHua Education is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for China YuHua Education that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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