Let's compare XIN directly to China Vanke, China's largest real estate developer by market value. We shall ignore the fact that Vanke is much larger than XIN and should probably have a higher payout ratio, since Vanke’s reinvestment and growth prospects are more muted due to its large size.
China Vanke pays out 15% of its earnings as dividends, based on 2011 earnings. In fact Vanke’s dividend policy is stated as follows: “The Company insisted on cash dividends distribution policy, maintianing an amount of cash dividends stably accounted for 15% of consolidated net profit of the Company every year.”
XIN pays out about 12% of its earnings as dividends, based on 2011 earnings (XIN's earnings are distorted in 2012 by tax items and new project starts). This is slightly less than China Vanke. However, XIN has bought back quite a bit of stock, and stock buybacks are also a means to return cash to shareholders. XIN's most recently completed buyback ended in June 2012, and involved $10 million of repurchases. An additional buyback of $20 million was recently authorized. I see nothing in Vanke’s reports that indicate that Vanke has bought back any stock in recent years. If you consider that XIN bought $8.7 million of stock back from July 1, 2011 through June 30, 2012, an amount equivalent to about $0.12 per share, the total payout ratio becomes more than 20% based on 2011 earnings, substantially higher than Vanke.
XIN's total payout ratio vs. peers is a testament to the legitimacy of the company.
It is a wrong assumption to assume Vanke should have a higher payout ratio because it is much larger than XIN. In terms of revenue growth, Vanke almost outpaced XIN every year for the last 5 years. Vanke is a national developer. Its strong scale and efficiency provide it an opportunities to expand to any cities they want to have a project. On the other hand, XIN does not have the level of finance access and scale Vanke enjoys.Therefore, XIN can only selectively choose a project that fit its need and capacity, resulting in much smaller growth potential. In my opinion, XIN as a specialty developer, should focus on profitability rather than growth and return at least 30% of its profit to its shareholders.
You also forget to mention that Vanke's dividend payout ratio is the lowest compared with many of its peers. Poly and Evergrande have much higher dividend payout ratio than Vanke, even though they have very strong growth as well.
Vanke’s revenue growth lags XIN’s over any reasonably long time period dating back from today. In addition, the only reason (IMO) that Vanke’s growth has been anywhere near XIN’s is due to a dramatic asset build up at Vanke facilitated by their massive use of prepayments to finance their operations – this can only go on for so long. While Vanke becomes more inefficient in use of assets, XIN has become more efficient, even as it has grown. Asset turnover at Vanke ballooned from 2.9 years at YE 2008 to 4 years currently, while declining at XIN from 2.65 years at YE 2008 to 1.69 years currently.
Poly has been even worse than Vanke in terms of real growth. An asset build up has been financed by prepayments, debt and equity issuance. On a per share basis, Poly has practically zero growth. Poly should be returning all its profits as dividends instead of issuing shares.
Evergrande has minimal history as a public company, but their debt has ballooned, and their growth still lags.
Good thread. I applaud efforts to quantify where possible, so cheers on this project. Like you, I also toss out all one time profits/losses from a company's earnings, including last Q's .36 for XIN, so you can take that as a given.
1. Do you happen to know how Vanke pays their dividend? Is it annually, at the end of the FY, or quarterly, or how? And what period is the 15% measured against? If dividends are quarterly, are their sizes determined by calculating 15% of the net income in the quarter just finished? That seems logical to me, but I don't know.
2. I ask because if Vanke's paying 15% of its most recently ended quarters, then if we're going to compare its 15% number to XIN, shouldn't we use the same method of calculation for XIN that we used for Vanke?
In other words, wouldn't using the last 2 quarters of net income (the quarters that ended just before XIN's last two dividend payouts), plus the next two quarters estimates, (the quarters that WILL end just before XIN's next two dividend payouts), give us the right numbers to compare to Vanke? I mean, if those are the income quarters we're evaluating Vanke's dividends against, shouldn't we use the same quarters for XIN?
I just want to make sure we're comparing apples to apples. My proposal's not perfect: it's primary drawback is that XIN's next two quarters' net incomes are currently only estimates which would have to be updated when they're announced, but it has the advantage of comparing the two companies' four payouts to the four quarters' income that immediately preceded them, comparing apples to apples.
3. If Dividend Payout Ratios (a term I learned, no kidding, earlier today) are a measure of a company's ability and willingness to pay dividends, isn't it somewhat nonsensical to apply the dividend XIN's going to pay in February, 2013 against its net income from the fourth quarter of 2011? Wouldn't XIN's net income from the fourth quarter of 2012 be a better measure? Inserting such a huge time lag can only reduce the ratio's accuracy and usefulness.
4. The Renewed Percentage Question.
On a completely different front, I also think it's worth noting that Vanke's 15% Dividend Payout Ratio is set by corporate bylaw, so an investor can be sure that next year he'll get 15% again. XIN has no such guarantee. Its last three years of dividends have been: 2012, .04 quarterlies. 2011, no dividend. 2010, .10 end-of-year dividend. There's really no pattern.
Folks hope XIN will renew its dividend, but as far as I know, XIN's never said anything to that effect.