Xingfa Aluminium Holdings (HKG:98) Will Pay A Dividend Of CN¥0.64

Xingfa Aluminium Holdings Limited (HKG:98) has announced that it will pay a dividend of CN¥0.64 per share on the 24th of June. The dividend yield will be 8.3% based on this payment which is still above the industry average.

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Xingfa Aluminium Holdings' Payment Could Potentially Have Solid Earnings Coverage

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. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share could rise by 6.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Xingfa Aluminium Holdings

Dividend Volatility

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 an annual total of CN¥0.0719 in 2015 to the most recent total annual payment of CN¥0.597. This means that it has been growing its distributions at 24% per annum 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 Has Growth Potential

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. Xingfa Aluminium Holdings has seen EPS rising for the last five years, at 6.3% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Xingfa Aluminium Holdings' prospects of growing its dividend payments in the future.

In Summary

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Xingfa Aluminium Holdings that investors need to be conscious of moving forward. Is Xingfa Aluminium 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.