Xinyi Solar Holdings' (HKG:968) Dividend Will Be Reduced To HK$0.10

The board of Xinyi Solar Holdings Limited (HKG:968) has announced it will be reducing its dividend by 41% from last year's payment of HK$0.17 on the 6th of September, with shareholders receiving HK$0.10. Despite the cut, the dividend yield of 2.2% will still be comparable to other companies in the industry.

Check out our latest analysis for Xinyi Solar Holdings

Xinyi Solar Holdings' Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Xinyi Solar Holdings was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 119.3% over the next year. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Xinyi Solar Holdings' Dividend Has Lacked Consistency

Looking back, Xinyi Solar Holdings' dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was HK$0.018 in 2014, and the most recent fiscal year payment was HK$0.27. This implies that the company grew its distributions at a yearly rate of about 40% over that duration. Xinyi Solar 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 see if earnings per share is growing. Xinyi Solar Holdings has seen EPS rising for the last five years, at 6.2% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Xinyi Solar Holdings' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Xinyi Solar Holdings is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Xinyi Solar Holdings that you should be aware of before investing. 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.