Ausnutria Dairy's (HKG:1717) Shareholders Will Receive A Bigger Dividend Than Last Year

By
Simply Wall St
Published
May 27, 2021
SEHK:1717
Source: Shutterstock

Ausnutria Dairy Corporation Ltd (HKG:1717) has announced that it will be increasing its dividend on the 24th of June to HK$0.27, which will be 23% higher than last year. This makes the dividend yield about the same as the industry average at 2.2%.

Check out our latest analysis for Ausnutria Dairy

Ausnutria Dairy's Earnings Easily Cover the Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, Ausnutria Dairy's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 30.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
SEHK:1717 Historic Dividend May 28th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the dividend has gone from CN¥0.024 to CN¥0.22. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. Ausnutria Dairy has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Ausnutria Dairy May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. While growth may be thin on the ground, Ausnutria Dairy could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Ausnutria Dairy's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Ausnutria Dairy 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 performing dividend stock.

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