Bauhaus International (Holdings) Limited (HKG:483) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 4th of September in order to receive the dividend, which the company will pay on the 20th of September.
Bauhaus International (Holdings)'s next dividend payment will be HK$0.06 per share, on the back of last year when the company paid a total of HK$0.06 to shareholders. Looking at the last 12 months of distributions, Bauhaus International (Holdings) has a trailing yield of approximately 5.4% on its current stock price of HK$1.11. 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 investigate whether Bauhaus International (Holdings) can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bauhaus International (Holdings) reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Bauhaus International (Holdings) 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. Over the last year, it paid out dividends equivalent to 254% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Bauhaus International (Holdings) intends to continue funding this dividend, or if it could be forced to the payment.
Bauhaus International (Holdings) does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Bauhaus International (Holdings) was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last 5 years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bauhaus International (Holdings)'s dividend payments per share have declined at 7.4% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
We update our analysis on Bauhaus International (Holdings) every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Has Bauhaus International (Holdings) got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. Bottom line: Bauhaus International (Holdings) has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Curious about whether Bauhaus International (Holdings) has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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 firstname.lastname@example.org. 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.