Key Things To Consider Before Buying Tingyi (Cayman Islands) Holding Corp. (HKG:322) For Its Dividend
Dividend paying stocks like Tingyi (Cayman Islands) Holding Corp. (HKG:322) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
A 1.8% yield is nothing to get excited about, but investors probably think the long payment history suggests Tingyi (Cayman Islands) Holding has some staying power. That said, the recent jump in the share price will make Tingyi (Cayman Islands) Holding's dividend yield look smaller, even though the company prospects could be improving. There are a few simple ways to reduce the risks of buying Tingyi (Cayman Islands) Holding for its dividend, and we'll go through these below.
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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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Tingyi (Cayman Islands) Holding paid out 46% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.
We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Tingyi (Cayman Islands) Holding's cash payout ratio last year was 20%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
While the above analysis focuses on dividends relative to a company's earnings, we do note Tingyi (Cayman Islands) Holding's strong net cash position, which will let it pay larger dividends for a time, should it choose.
We update our data on Tingyi (Cayman Islands) Holding 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. Tingyi (Cayman Islands) Holding has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past ten-year period, the first annual payment was CN¥0.16 in 2010, compared to CN¥0.22 last year. Dividends per share have grown at approximately 3.3% per year over this time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.
It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? While there may be fluctuations in the past , Tingyi (Cayman Islands) Holding's earnings per share have basically not grown from where they were five years ago. Flat earnings per share are acceptable for a time, but over the long term, the purchasing power of the company's dividends could be eroded by inflation. Tingyi (Cayman Islands) Holding is paying out less than half of its earnings, which we like. However, earnings per share are unfortunately not growing much. Might this suggest that the company should pay a higher dividend instead?
Conclusion
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. It's great to see that Tingyi (Cayman Islands) Holding is paying out a low percentage of its earnings and cash flow. Unfortunately, the company has not been able to generate earnings growth, and cut its dividend at least once in the past. Overall we think Tingyi (Cayman Islands) Holding is an interesting dividend stock, although it could be better.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 21 analysts we track are forecasting for Tingyi (Cayman Islands) Holding for free with public analyst estimates for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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.
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. Thank you for reading.
