Yihai International Holding (HKG:1579) Will Pay A Larger Dividend Than Last Year At CN¥0.8154

Yihai International Holding Ltd. (HKG:1579) will increase its dividend from last year's comparable payment on the 18th of June to CN¥0.8154. This takes the annual payment to 5.4% of the current stock price, which is about average for the industry.

Check out our latest analysis for Yihai International Holding

Yihai International Holding's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Yihai International Holding's dividend made up quite a large proportion of earnings but only of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 30.9%. If the dividend continues along recent trends, we estimate the payout ratio could reach 88%, which is on the higher side, but certainly still feasible.

Yihai International Holding's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 6 years was CN¥0.0498 in 2018, and the most recent fiscal year payment was CN¥0.74. This works out to be a compound annual growth rate (CAGR) of approximately 57% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Yihai International Holding's Dividend Might Lack Growth

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Yihai International Holding has seen EPS rising for the last five years, at 10% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Yihai International Holding's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Yihai International Holding's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Yihai International Holding that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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