Binhai Investment (HKG:2886) Has Announced That It Will Be Increasing Its Dividend To HK$0.10

Binhai Investment Company Limited's (HKG:2886) dividend will be increasing from last year's payment of the same period to HK$0.10 on 9th of June. This will take the dividend yield to an attractive 5.8%, providing a nice boost to shareholder returns.

View our latest analysis for Binhai Investment

Binhai Investment's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Binhai Investment's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS could expand by 5.0% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Binhai Investment's Dividend Has Lacked Consistency

Binhai Investment has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2014, the dividend has gone from HK$0.05 total annually to HK$0.10. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Binhai Investment might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Binhai Investment has grown earnings per share at 5.0% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Binhai Investment will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Binhai Investment has 3 warning signs (and 1 which can't be ignored) we think you should know about. Is Binhai Investment not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.