Xinyi Solar Holdings (HKG:968) Is Increasing Its Dividend To HK$0.17

The board of Xinyi Solar Holdings Limited (HKG:968) has announced that it will be increasing its dividend on the 7th of July to HK$0.17. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Xinyi Solar Holdings' stock price has reduced by 44% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for Xinyi Solar Holdings

Xinyi Solar Holdings' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Xinyi Solar Holdings' dividend was only 46% of earnings, however it was paying out 221% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 28.7% over the next year. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Xinyi Solar Holdings' Dividend Has Lacked Consistency

It's comforting to see that Xinyi Solar Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from HK$0.018 in 2014 to the most recent annual payment of HK$0.26. This means that it has been growing its distributions at 46% per annum over that time. 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 Looks Likely To Grow

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 24% per annum. Xinyi Solar Holdings is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Xinyi Solar Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 3 warning signs for Xinyi Solar Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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