Guizhou Guihang Automotive ComponentsLtd (SHSE:600523) Has Announced That It Will Be Increasing Its Dividend To CN¥0.122

The board of Guizhou Guihang Automotive Components Co.,Ltd (SHSE:600523) has announced that it will be paying its dividend of CN¥0.122 on the 4th of June, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.1% is only a modest boost to shareholder returns.

See our latest analysis for Guizhou Guihang Automotive ComponentsLtd

Guizhou Guihang Automotive ComponentsLtd's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Guizhou Guihang Automotive ComponentsLtd is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS could expand by 11.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.105, compared to the most recent full-year payment of CN¥0.122. This works out to be a compound annual growth rate (CAGR) of approximately 1.5% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Guizhou Guihang Automotive ComponentsLtd has seen EPS rising for the last five years, at 11% per annum. Guizhou Guihang Automotive ComponentsLtd definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Guizhou Guihang Automotive ComponentsLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Guizhou Guihang Automotive ComponentsLtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Guizhou Guihang Automotive ComponentsLtd that investors need to be conscious of moving forward. Is Guizhou Guihang Automotive ComponentsLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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 qualitative material. Simply Wall St has no position in any stocks mentioned.