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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Xinyuan Real Estate Co., Ltd. (NYSE:XIN) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 14th of September will not receive the dividend, which will be paid on the 28th of September.
Xinyuan Real Estate's next dividend payment will be US$0.022 per share, and in the last 12 months, the company paid a total of US$0.10 per share. Based on the last year's worth of payments, Xinyuan Real Estate stock has a trailing yield of around 4.9% on the current share price of $2.04. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Xinyuan Real Estate paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Xinyuan Real Estate didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 7.4% of its cash flow last year.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Xinyuan Real Estate reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Xinyuan Real Estate's dividend payments are broadly unchanged compared to where they were nine years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
We update our analysis on Xinyuan Real Estate every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Has Xinyuan Real Estate got what it takes to maintain its dividend payments? It's hard to get used to Xinyuan Real Estate paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Xinyuan Real Estate has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
So if you're still interested in Xinyuan Real Estate despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 5 warning signs for Xinyuan Real Estate (2 shouldn't be ignored!) that you ought to be aware of before buying the shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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