Beijing Enterprises Holdings Limited (HKG:392) has announced that it will be increasing its dividend on the 26th of July to HK$0.85. This will take the annual payment from 4.9% to 4.9% of the stock price, which is above what most companies in the industry pay.
Beijing Enterprises Holdings' Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Beijing Enterprises Holdings 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.
Over the next year, EPS is forecast to fall by 9.6%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 18%, which is comfortable for the company to continue in the future.
Beijing Enterprises Holdings Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from HK$0.70 to HK$1.25. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
We Could See Beijing Enterprises Holdings' Dividend Growing
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Beijing Enterprises Holdings has grown earnings per share at 9.9% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Our Thoughts On Beijing Enterprises Holdings' Dividend
In summary, while it's always good to see the dividend being raised, we don't think Beijing Enterprises Holdings' payments are rock solid. While the low payout ratio is 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.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 1 warning sign for Beijing Enterprises Holdings 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.
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.