Xinyi Solar Holdings (HKG:968) Has Affirmed Its Dividend Of HK$0.10

The board of Xinyi Solar Holdings Limited (HKG:968) has announced that it will pay a dividend on the 4th of July, with investors receiving HK$0.10 per share. This means the dividend yield will be fairly typical at 2.4%.

See our latest analysis for Xinyi Solar Holdings

Xinyi Solar Holdings' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Xinyi Solar Holdings was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 111.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

Xinyi Solar Holdings' Dividend Has Lacked Consistency

Xinyi Solar Holdings has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the dividend has gone from HK$0.018 total annually to HK$0.20. This implies that the company grew its distributions at a yearly rate of about 31% 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. It's encouraging to see that Xinyi Solar Holdings has been growing its earnings per share at 5.6% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Xinyi Solar Holdings that investors should know about before committing capital to this stock. Is Xinyi Solar 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.