January 20, 2022

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Are You An Income Investor? Don’t Miss Out On BAIOO Family Interactive Limited (HKG:2100)

Could BAIOO Family Interactive Limited (HKG:2100) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Unfortunately, it’s common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

With a four-year payment history and a 5.4% yield, many investors probably find BAIOO Family Interactive intriguing. It sure looks interesting on these metrics – but there’s always more to the story . During the year, the company also conducted a buyback equivalent to around 0.9% of its market capitalisation. Some simple analysis can reduce the risk of holding BAIOO Family Interactive for its dividend, and we’ll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on BAIOO Family Interactive!

SEHK:2100 Historical Dividend Yield April 13th 2020

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. Looking at the data, we can see that of BAIOO Family Interactive’s profits were paid out as dividends in the last 12 months. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.

While the above analysis focuses on dividends relative to a company’s earnings, we do note BAIOO Family Interactive’s strong net cash position, which will let it pay larger dividends for a time, should it choose.

Consider getting our latest analysis on BAIOO Family Interactive’s financial position here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well – nasty. Looking at the data, we can see that BAIOO Family Interactive has been paying a dividend for the past four years. The dividend has not fluctuated much, but with a relatively short payment history, we can’t be sure this is sustainable across a full market cycle. During the past four-year period, the first annual payment was CN¥0.015 in 2016, compared to CN¥0.045 last year. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time.

We’re not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend’s purchasing power over the long term. It’s good to see BAIOO Family Interactive has been growing its earnings per share at 23% a year over the past five years.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We’re glad to see BAIOO Family Interactive has a low payout ratio, as this suggests earnings are being reinvested in the business. We were also glad to see it growing earnings, although its dividend history is not as long as we’d like. BAIOO Family Interactive has a credible record on several fronts, but falls slightly short of our standards for a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we’ve picked out 3 warning signs for BAIOO Family Interactive that investors should take into consideration.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

If you spot an error that warrants correction, please contact the editor at [email protected] 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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