Huabao International Holdings (HKG:336) Has Affirmed Its Dividend Of CN¥0.035

The board of Huabao International Holdings Limited (HKG:336) has announced that it will pay a dividend on the 12th of October, with investors receiving CN¥0.035 per share. The dividend yield is 3.6% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Huabao International Holdings

Huabao International Holdings' Distributions May Be Difficult To Sustain

If it is predictable over a long period, even low dividend yields can be attractive. Huabao International Holdings is not generating a profit, and despite this is paying out most of its free cash flow as a dividend. Paying a dividend while unprofitable is generally considered an aggressive policy, and with limited funds retained for reinvestment, growth may be slow.

Looking forward, earnings per share could 55.7% over the next year if the trend of the last few years can't be broken. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was CN¥0.149 in 2013, and the most recent fiscal year payment was CN¥0.0944. This works out to be a decline of approximately 4.4% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Huabao International Holdings' EPS has fallen by approximately 56% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. To that end, Huabao International Holdings has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Huabao International Holdings 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.