Hsin Ba Ba (TWSE:9906) Is Paying Out A Larger Dividend Than Last Year

Hsin Ba Ba Corporation (TWSE:9906) will increase its dividend from last year's comparable payment on the 30th of September to NT$5.36. Although the dividend is now higher, the yield is only 2.7%, which is below the industry average.

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 148% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Hsin Ba Ba

Hsin Ba Ba Doesn't Earn Enough To Cover Its Payments

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share could rise by 51.1% 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 385% over the next year.

Hsin Ba Ba Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2022, the annual payment back then was NT$0.658, compared to the most recent full-year payment of NT$5.61. This works out to be a compound annual growth rate (CAGR) of approximately 192% a year over that time. Hsin Ba Ba has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Hsin Ba Ba's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Hsin Ba Ba has impressed us by growing EPS at 51% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

Hsin Ba Ba's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Hsin Ba Ba will make a great income stock. Strong earnings growth means Hsin Ba Ba has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Hsin Ba Ba you should be aware of, and 2 of them don't sit too well with us. 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.