Yuexiu Property's (HKG:123) Dividend Will Be Reduced To CN¥0.307

Yuexiu Property Company Limited (HKG:123) has announced that on 6th of July, it will be paying a dividend ofCN¥0.307, which a reduction from last year's comparable dividend. The dividend yield of 6.0% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Yuexiu Property

Yuexiu Property's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Yuexiu Property was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 87% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 34.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 53% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.26 in 2013, and the most recent fiscal year payment was CN¥0.547. This works out to be a compound annual growth rate (CAGR) of approximately 7.7% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Yuexiu Property might have put its house in order since then, but we remain cautious.

Yuexiu Property May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Yuexiu Property hasn't seen much change in its earnings per share over the last five years. Growth of 1.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

We should note that Yuexiu Property has issued stock equal to 30% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Yuexiu Property is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 3 warning signs for Yuexiu Property you should be aware of, and 1 of them is concerning. 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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