Henan Jinma Energy (HKG: 6885) to pay dividend of HK $ 0.12

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The advice of Henan Jinma Energy Company Limited (HKG: 6885) announced that it will pay a dividend on November 30, with investors receiving HK $ 0.12 per share. Based on this payment, the dividend yield on the shares of the company will be 8.2%, which is an attractive increase in returns for shareholders.

Check out our latest analysis for Henan Jinma Energy

Henan Jinma Energy’s Profits Easily Cover Distributions

Impressive dividend yields are good, but it doesn’t matter much if the payouts can’t be sustained. Based on the last payment, Henan Jinma Energy 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 could increase by 75.5% if recent trends continue. Assuming the dividend continues on recent trends, we think the payout ratio could be 19% by next year, which is in a fairly sustainable range.

SEHK: 6885 Historic dividend October 18, 2021

Henan Jinma Energy’s dividend lacks consistency

The track record is not the longest, but we are already seeing some instability in payments. Since 2018, the first annual payment was 0.20 CN, compared to the last annual payment of 0.30 CN. This means that he increased his distributions by 14% per year during this period. Despite the rapid growth of the dividend over the past few years, we have also seen payouts decline in the past, which makes us cautious.

The dividend seems likely to increase

With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate a growing dividend in the future. Henan Jinma Energy has seen its EPS increase over the past five years, to 76% per year. Rapid earnings growth and a low payout ratio suggest that this company has indeed reinvested in its business. If this were to continue, this business could have a bright future.

In summary

Overall, it’s nice to see a consistent dividend payout, but we believe in the longer term the current payout level could be unsustainable. While the low payout rate is a redemption feature, this is offset by the minimum amount of money to cover the payouts. We don’t think Henan Jinma Energy is a great stock to add to your portfolio if income is your goal.

It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing the performance of stocks. Example: we have spotted 2 warning signs for Henan Jinma Energy (of which 1 is significant!) that you should know. If you are a dividend investor, you can also view our curated list of high performing dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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