The advice of DaFa Properties Group Limited (HKG: 6111) announced that the January 5 dividend will be raised to HK $ 0.058, 53% more than last year. Although the dividend is now higher, the yield is only 2.2%, which is lower than the industry average.
See our latest analysis for DaFa Properties Group
DaFa Properties Group revenues easily cover distributions
It would be nice if the yield was higher, but we should also check whether higher levels of dividend payouts would be sustainable. Based on the last payment, DaFa Properties Group was earning enough to cover the dividend, but free cash flow was not positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is expected to increase by 38.2%. Assuming the dividend continues on recent trends, we think the payout ratio could be 27% by next year, which is in a fairly sustainable range.
DaFa Properties Group dividend lacks consistency
Looking back, the dividend has been volatile but with a relatively short history, we think it may be a bit early to draw conclusions about the long-term sustainability of dividends. Since 2019, the dividend has increased from CN ¥ 0.14 to CN ¥ 0.096. Dividend payments fell sharply, down 34% over this period. A business that decreases its dividend over time is usually not what we are looking for.
The dividend seems likely to increase
With a relatively volatile dividend and a bad history of falling dividends, it’s even more important to see if EPS rises. DaFa Properties Group has impressed us by increasing EPS by 28% per year over the past three years. Rapid earnings growth and a low payout ratio suggest that this company has indeed reinvested in its business. If this continues, this business could have a bright future.
Our thoughts on the dividend of the DaFa Properties group
In summary, while it’s always good to see the dividend increase, we don’t think DaFa Properties Group’s payouts are strong. With no cash flow, it’s hard to see how the business can support the payment of a dividend. We don’t think DaFa Properties Group is a great stock to add to your portfolio if income is your goal.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. As an example, we have met 2 warning signs for DaFa Properties Group you need to be aware of it, and one of them is a bit of a concern. We have also set up a list of global stocks with a solid dividend.
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