Shenzhen Investment Holdings Bay Area Development (HKG:737) Is Paying Out Less In Dividends Than Last Year

Shenzhen Investment Holdings Bay Area Development Company Limited's (HKG:737) dividend is being reduced from last year's payment covering the same period to CN¥0.0774 on the 15th of July. The dividend yield of 8.8% is still a nice boost to shareholder returns, despite the cut.

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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. Based on the last payment, the dividend made up 87% of cash flows, but a higher proportion of net income. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Earnings per share could rise by 3.0% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 102% over the next year.

See 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 dividend has gone from an annual total of CN¥0.179 in 2015 to the most recent total annual payment of CN¥0.15. The dividend has shrunk at around 1.8% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 3.0% a year for the past five years, which isn't massive but still better than seeing them shrink. The earnings growth is anaemic, and the company is paying out 100% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

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 identified 3 warning signs for Shenzhen Investment Holdings Bay Area Development (2 are concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.