Binhai Investment (HKG:2886) Is Paying Out A Larger Dividend Than Last Year

Binhai Investment Company Limited (HKG:2886) has announced that it will be increasing its dividend on the 10th of June to HK$0.09. This takes the dividend yield from 5.9% to 5.9%, which shareholders will be pleased with.

View our latest analysis for Binhai Investment

Binhai Investment's Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Binhai Investment was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 15.0% over the next 12 months. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

Binhai Investment's Dividend Has Lacked Consistency

Looking back, Binhai Investment's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 8 years was HK$0.05 in 2014, and the most recent fiscal year payment was HK$0.09. This implies that the company grew its distributions at a yearly rate of about 7.6% over that duration. 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 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. Binhai Investment has impressed us by growing EPS at 15% per year over the past five years. Binhai Investment definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Binhai Investment's payments are rock solid. While Binhai Investment is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Binhai Investment has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.