Shenzhen Investment Holdings Bay Area Development (HKG:737) Has Announced That Its Dividend Will Be Reduced To CN¥0.0774

Shenzhen Investment Holdings Bay Area Development Company Limited (HKG:737) is reducing its dividend from last year's comparable payment to CN¥0.0774 on the 15th of July. The yield is still above the industry average at 9.0%.

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Shenzhen Investment Holdings Bay Area Development's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Looking forward, EPS could fall by 5.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 112%, which could put the dividend under pressure if earnings don't start to improve.

Check out our latest analysis for Shenzhen Investment Holdings Bay Area Development

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.179 in 2015, and the most recent fiscal year payment was CN¥0.15. Doing the maths, this is a decline of about 1.8% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Come By

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. Shenzhen Investment Holdings Bay Area Development has seen earnings per share falling at 5.5% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

We're Not Big Fans Of Shenzhen Investment Holdings Bay Area Development's Dividend

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Shenzhen Investment Holdings Bay Area Development that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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