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Is Haitong UniTrust International Leasing Co., Ltd. (HKG:1905) A Smart Choice For Dividend Investors?

Simply Wall St

Could Haitong UniTrust International Leasing Co., Ltd. (HKG:1905) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

Some simple research can reduce the risk of buying Haitong UniTrust International Leasing for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Haitong UniTrust International Leasing!

SEHK:1905 Historical Dividend Yield, September 3rd 2019

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, Haitong UniTrust International Leasing paid out 31% of its profit as dividends. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

We update our data on Haitong UniTrust International Leasing every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. With a payment history of less than 2 years, we think it's a bit too soon to think about living on the income from its dividend. Its most recent annual dividend was CN¥0.10 per share.


Dividend Growth Potential

The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. Haitong UniTrust International Leasing's earnings per share are down -7.0% over the past year. That's not great to see, but there could be a number of reasons for this. Should the decline continue, we would become concerned. Any one year of performance can be misleading for a variety of reasons, so we wouldn't like to form any strong conclusions based on these numbers alone.

We'd also point out that Haitong UniTrust International Leasing issued a meaningful number of new shares in the past year. Regularly issuing new shares can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Haitong UniTrust International Leasing has a low and conservative payout ratio. Second, the company has not been able to generate earnings growth, and its history of dividend payments too short for us to thoroughly evaluate the dividend's consistency across an economic cycle. Haitong UniTrust International Leasing might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

Now, if you want to look closer, it would be worth checking out our free research on Haitong UniTrust International Leasing management tenure, salary, and performance.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.