Xinyi Solar Holdings' (HKG:968) Shareholders Will Receive A Smaller Dividend 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 means that the dividend yield is 2.1%, which is a bit low when comparing to other companies in the industry.

View our latest analysis for Xinyi Solar Holdings

Xinyi Solar Holdings' Earnings Easily Cover the Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last payment was quite easily covered by earnings, but it made up 128% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 16.9%. If the dividend continues on this path, the payout ratio could be 49% 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. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from HK$0.018 in 2014 to the most recent annual payment of HK$0.27. This means that it has been growing its distributions at 40% 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. It's encouraging to see Xinyi Solar Holdings has been growing its earnings per share at 13% 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.

Our Thoughts On Xinyi Solar Holdings' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Xinyi Solar Holdings is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 25 Xinyi Solar Holdings analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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