Fanhua's (NASDAQ:FANH) Dividend Is Being Reduced To US$0.14

By
Simply Wall St
Published
May 30, 2021
NasdaqGS:FANH
Source: Shutterstock

Fanhua Inc.'s (NASDAQ:FANH) dividend is being reduced to US$0.14 on the 25th of June. However, the dividend yield of 6.6% is still a decent boost to shareholder returns.

View our latest analysis for Fanhua

Fanhua's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Fanhua was paying out 85% of earnings, but a comparatively small 62% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 73.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 9.7% which would be quite comfortable going to take the dividend forward.

historic-dividend
NasdaqGS:FANH Historic Dividend May 31st 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was CN¥1.74 in 2011, and the most recent fiscal year payment was CN¥3.82. This works out to be a compound annual growth rate (CAGR) of approximately 8.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Fanhua's Dividend Might Lack Growth

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Fanhua has impressed us by growing EPS at 15% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Fanhua's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Fanhua that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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