08 Nov עופר איתן Report: Is BII Railway Transportation Technology Holdings Company L
Is BII Railway Transportation Technology Holdings Company Limited (HKG:1522) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.
With a eight-year payment history and a 5.1% yield, many investors probably find BII Railway Transportation Technology Holdings intriguing. It sure looks interesting on these metrics – but there’s always more to the story. Before you buy any stock for its dividend however, you should always remember Warren Buffett’s two rules: 1) Don’t lose money, and 2) Remember rule #1. We’ll run through some checks below to help with this.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company’s net profit after tax is a simple way of reality-checking whether a dividend is sustainable. BII Railway Transportation Technology Holdings paid out 60% of its profit as dividends, over the trailing twelve month period. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. BII Railway Transportation Technology Holdings paid out 16% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
With a strong net cash balance, BII Railway Transportation Technology Holdings investors may not have much to worry about in the near term from a dividend perspective.
Remember, you can always get a snapshot of BII Railway Transportation Technology Holdings’ latest financial position, by checking our visualisation of its financial health.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the last decade of data, we can see that BII Railway Transportation Technology Holdings paid its first dividend at least eight years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we’re cautious about the consistency of its dividend across a full economic cycle. During the past eight-year period, the first annual payment was HK$0.03 in 2012, compared to HK$0.02 last year. This works out to be a decline of approximately 2.8% per year over that time. BII Railway Transportation Technology Holdings’ dividend has been cut sharply at least once, so it hasn’t fallen by 2.8% every year, but this is a decent approximation of the long term change.
We struggle to make a case for buying BII Railway Transportation Technology Holdings for its dividend, given that payments have shrunk over the past eight years.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It’s not great to see that BII Railway Transportation Technology Holdings’ have fallen at approximately 3.5% over the past five years. Declining earnings per share over a number of years is not a great sign for the dividend investor. Without some improvement, this does not bode well for the long term value of a company’s dividend.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. BII Railway Transportation Technology Holdings’ payout ratios are within a normal range for the average corporation, and we like that its cashflow was stronger than reported profits. Earnings per share are down, and BII Railway Transportation Technology Holdings’ dividend has been cut at least once in the past, which is disappointing. Ultimately, BII Railway Transportation Technology Holdings comes up short on our dividend analysis. It’s not that we think it is a bad company – just that there are likely more appealing dividend prospects out there on this analysis.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we’ve picked out 3 warning signs for BII Railway Transportation Technology Holdings that investors should know about before committing capital to this stock.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or…