Xinyi Glass Holdings Limited (HKG:868) is reducing its dividend from last year's comparable payment to CN¥0.10 on the 1st of January. Based on this payment, the dividend yield will be 5.2%, which is lower than the average for the industry.

See our latest analysis for Xinyi Glass Holdings

Xinyi Glass Holdings' Payment Could Potentially Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last payment was quite easily covered by earnings, but it made up 97% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 12.5%. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was CN¥0.221, compared to the most recent full-year payment of CN¥0.382. This works out to be a compound annual growth rate (CAGR) of approximately 5.6% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Xinyi Glass Holdings' earnings per share has shrunk at approximately 5.0% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Xinyi Glass Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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