Dividend paying stocks like YCIH Green High-Performance Concrete Company Limited (HKG:1847) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it’s common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
Some simple research can reduce the risk of buying YCIH Green High-Performance Concrete for its dividend – read on to learn more.
Explore this interactive chart for our latest analysis on YCIH Green High-Performance Concrete!
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. YCIH Green High-Performance Concrete paid out 22% of its profit as dividends, over the trailing twelve month period. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.
While the above analysis focuses on dividends relative to a company’s earnings, we do note YCIH Green High-Performance Concrete’s strong net cash position, which will let it pay larger dividends for a time, should it choose.
Remember, you can always get a snapshot of YCIH Green High-Performance Concrete’s latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. With a payment history of less than 2 years, we think it’s a bit too soon to think about living on the income from its dividend. Its most recent annual dividend was CN¥0.14 per share.
It’s good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn’t want to depend on this dividend too heavily.
Dividend Growth Potential
Examining whether the dividend is affordable and stable is important. However, it’s also important to assess if earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient’s purchasing power. YCIH Green High-Performance Concrete’s earnings per share have been essentially flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation.
Conclusion
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We’re glad to see YCIH Green High-Performance Concrete has a low payout ratio, as this suggests earnings are being reinvested in the business. Second, earnings per share have been in decline, and the dividend history is shorter than we’d like. In summary, we’re unenthused by YCIH Green High-Performance Concrete as a dividend stock. It’s not that we think it is a bad company; it simply falls short of our criteria in some key areas.
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. For instance, we’ve picked out 1 warning sign for YCIH Green High-Performance Concrete that investors should take into consideration.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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