China Bills Finance (TWSE:2820) Is Increasing Its Dividend To NT$0.73

China Bills Finance Corporation (TWSE:2820) will increase its dividend from last year's comparable payment on the 26th of July to NT$0.73. This will take the dividend yield to an attractive 4.7%, providing a nice boost to shareholder returns.

View our latest analysis for China Bills Finance

China Bills Finance's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, China Bills Finance'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.

If the company can't turn things around, EPS could fall by 1.5% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 81%, meaning that most of the company's earnings is being paid out to shareholders.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from NT$0.70 total annually to NT$0.73. Dividend payments have been growing, but very slowly over the period. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that China Bills Finance's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

China Bills Finance's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think China Bills Finance will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for China Bills Finance (2 are a bit unpleasant!) that you should be aware of before investing. 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.

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