Hsin Ba Ba (TWSE:9906) Is Increasing Its Dividend To NT$5.61

Hsin Ba Ba Corporation (TWSE:9906) will increase its dividend from last year's comparable payment on the 30th of September to NT$5.61. This takes the annual payment to 2.7% of the current stock price, which unfortunately is below what the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Hsin Ba Ba's stock price has increased by 140% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Hsin Ba Ba

Hsin Ba Ba's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Hsin Ba Ba's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

If the trend of the last few years continues, EPS will grow by 58.7% over the next 12 months. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 69% which would be quite comfortable going to take the dividend forward.

Hsin Ba Ba Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2022, the dividend has gone from NT$0.658 total annually to NT$5.61. This works out to be a compound annual growth rate (CAGR) of approximately 192% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Hsin Ba Ba has impressed us by growing EPS at 59% per year over the past five years. While EPS is growing rapidly, Hsin Ba Ba paid out a very high 109% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Hsin Ba Ba's Dividend

Overall, we always like to see the dividend being raised, but we don't think Hsin Ba Ba will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. To that end, Hsin Ba Ba has 3 warning signs (and 1 which is potentially serious) we think you should know about. Is Hsin Ba Ba 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.