Xinyi Solar Holdings (HKG:968) Is Paying Out Less In Dividends Than Last Year

Xinyi Solar Holdings Limited (HKG:968) has announced it will be reducing its dividend payable on the 6th of July to HK$0.10. This payment takes the dividend yield to 1.9%, which only provides a modest boost to overall returns.

View our latest analysis for Xinyi Solar Holdings

Xinyi Solar Holdings' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, Xinyi Solar Holdings is earning enough to cover the payment, but the it makes up 128% of 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 10.0% over the next year. 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.

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. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The first 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. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Xinyi Solar Holdings has seen EPS rising for the last five years, at 13% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Xinyi Solar Holdings 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 25 analysts we track are forecasting for Xinyi Solar Holdings for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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