Readers hoping to buy Xinyi Glass Holdings Limited (HKG:868) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 20th of August to receive the dividend, which will be paid on the 3rd of September.
Xinyi Glass Holdings's next dividend payment will be HK$0.25 per share, on the back of last year when the company paid a total of HK$0.52 to shareholders. Based on the last year's worth of payments, Xinyi Glass Holdings has a trailing yield of 7.0% on the current stock price of HK$7.43. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Xinyi Glass Holdings paying out a modest 48% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 134% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Xinyi Glass Holdings's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Xinyi Glass Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Xinyi Glass Holdings, with earnings per share up 5.2% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Xinyi Glass Holdings has delivered 17% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy Xinyi Glass Holdings for the upcoming dividend? Xinyi Glass Holdings delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 134% of its cash flow over the last year, which is a mediocre outcome. To summarise, Xinyi Glass Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Ever wonder what the future holds for Xinyi Glass Holdings? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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