China Aoyuan Group Limited (HKG:3883) will increase its dividend on the 16th of July to HK$0.92. This makes the dividend yield 10%, which is above the industry average.
China Aoyuan Group's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, China Aoyuan Group was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to expand by 9.8%. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.
China Aoyuan Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was CN¥0.033 in 2011, and the most recent fiscal year payment was CN¥0.66. This implies that the company grew its distributions at a yearly rate of about 35% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that China Aoyuan Group has grown earnings per share at 50% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While China Aoyuan Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think China Aoyuan Group is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for China Aoyuan Group that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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