Haidilao International Holding's (HKG:6862) Upcoming Dividend Will Be Larger Than Last Year's

Haidilao International Holding Ltd. (HKG:6862) will increase its dividend from last year's comparable payment on the 5th of July to CN¥0.824. This will take the annual payment to 4.5% of the stock price, which is above what most companies in the industry pay.

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 Haidilao International Holding'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.

View our latest analysis for Haidilao International Holding

Haidilao International Holding Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Haidilao International Holding was paying out 90% of earnings, but a comparatively small 49% 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 36.6%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 107% over the next year.

Haidilao International Holding's Dividend Has Lacked Consistency

It's comforting to see that Haidilao International Holding has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2019, the annual payment back then was CN¥0.0651, compared to the most recent full-year payment of CN¥0.748. This means that it has been growing its distributions at 63% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Haidilao International Holding's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Haidilao International Holding has grown earnings per share at 20% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Haidilao International Holding will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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. For instance, we've picked out 1 warning sign for Haidilao International Holding that investors should take into consideration. 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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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.