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Today we'll take a closer look at Changan Minsheng APLL Logistics Co., Ltd. (HKG:1292) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
With a nine-year payment history and a 3.5% yield, many investors probably find Changan Minsheng APLL Logistics intriguing. It sure looks interesting on these metrics - but there's always more to the story . When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
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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. So we need to be form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 35% of Changan Minsheng APLL Logistics's profits were paid out as dividends in the last 12 months. This is medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Unfortunately, while Changan Minsheng APLL Logistics pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.
With a strong net cash balance, Changan Minsheng APLL Logistics investors may not have much to worry about in the near term from a dividend perspective.
Consider getting our latest analysis on Changan Minsheng APLL Logistics's financial position here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the last decade of data, we can see that Changan Minsheng APLL Logistics paid its first dividend at least nine years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once by more than 20%, and we're cautious about the consistency of its dividend across a full economic cycle. During the past nine-year period, the first annual payment was CN¥0.09 in 2010, compared to CN¥0.10 last year. Dividends per share have grown at approximately 1.2% per year over this time. Changan Minsheng APLL Logistics's dividend payments have fluctuated, so it hasn't grown 1.2% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.