Huabao International Holdings (HKG:336) Is Paying Out Less In Dividends Than Last Year

Huabao International Holdings Limited's (HKG:336) dividend is being reduced from last year's payment covering the same period to CN¥0.0338 on the 6th of October. This means that the annual payment is 1.9% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Huabao International Holdings

Huabao International Holdings' Distributions May Be Difficult To Sustain

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Huabao International Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS might fall by 23.5% based on recent performance. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was CN¥0.128, compared to the most recent full-year payment of CN¥0.0682. Doing the maths, this is a decline of about 6.1% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Huabao International Holdings' EPS has declined at around 23% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 3 warning signs (and 2 which are potentially serious) we think you should know about. 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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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.