Xingfa Aluminium Holdings (HKG:98) Has Announced That It Will Be Increasing Its Dividend To HK$0.80

Xingfa Aluminium Holdings Limited (HKG:98) will increase its dividend on the 24th of June to HK$0.80. This will take the dividend yield from 8.1% to 8.2%, providing a nice boost to shareholder returns.

See our latest analysis for Xingfa Aluminium Holdings

Xingfa Aluminium Holdings' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Xingfa Aluminium Holdings was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 24.2% if recent trends continue. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

Xingfa Aluminium Holdings' Dividend Has Lacked Consistency

Xingfa Aluminium Holdings has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from CN¥0.04 in 2013 to the most recent annual payment of CN¥0.65. This works out to be a compound annual growth rate (CAGR) of approximately 36% a year over that time. Xingfa Aluminium 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Xingfa Aluminium Holdings has seen EPS rising for the last five years, at 24% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Xingfa Aluminium Holdings Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Xingfa Aluminium Holdings is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For example, we've picked out 2 warning signs for Xingfa Aluminium Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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