Uni-President China Holdings Ltd (HKG:220) will increase its dividend on the 9th of June to HK$0.45. This makes the dividend yield 5.2%, which is above the industry average.
Uni-President China Holdings Is Paying Out More Than It Is Earning
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Uni-President China Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
The next 12 months is set to see EPS grow by 6.2%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 162% over the next year.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from CN¥0.043 in 2011 to the most recent annual payment of CN¥0.38. This implies that the company grew its distributions at a yearly rate of about 24% over that duration. Uni-President China Holdings 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.
Uni-President China Holdings Might Find It Hard To Grow Its Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Uni-President China Holdings has impressed us by growing EPS at 14% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.
In summary, while it's always good to see the dividend being raised, we don't think Uni-President China Holdings' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Uni-President China Holdings is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Uni-President China Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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