Haidilao International Holding (HKG:6862) Is Paying Out Less In Dividends Than Last Year

Haidilao International Holding Ltd. (HKG:6862) is reducing its dividend from last year's comparable payment to CN¥0.338 on the 15th of October. This means the annual payment is 7.4% of the current stock price, which is above the average for the industry.

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Haidilao International Holding's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 95% of what it was earning and 83% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Earnings per share is forecast to rise by 34.2% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 114% over the next year.

View our latest analysis for Haidilao International Holding

Haidilao International Holding's Dividend Has Lacked Consistency

Haidilao International Holding has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 6 years was CN¥0.0651 in 2019, and the most recent fiscal year payment was CN¥0.936. This works out to be a compound annual growth rate (CAGR) of approximately 56% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Haidilao International Holding Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Haidilao International Holding has been growing its earnings per share at 55% a year over the past five years. While EPS is growing rapidly, Haidilao International Holding paid out a very high 95% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Haidilao International Holding's Dividend Doesn't Look Sustainable

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. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We don't think Haidilao International Holding is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Haidilao International Holding that investors need to be conscious of moving forward. Is Haidilao International Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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