Zhejiang Shuanghuan DrivelineLtd (SZSE:002472) Will Pay A Larger Dividend Than Last Year At CN¥0.12

Zhejiang Shuanghuan Driveline Co.,Ltd. (SZSE:002472) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of June to CN¥0.12. Although the dividend is now higher, the yield is only 0.5%, which is below the industry average.

See our latest analysis for Zhejiang Shuanghuan DrivelineLtd

Zhejiang Shuanghuan DrivelineLtd's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Zhejiang Shuanghuan DrivelineLtd's dividend was only 12% of earnings, however it was paying out 105% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 63.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 7.3% by next year, which is in a pretty sustainable range.

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. The annual payment during the last 10 years was CN¥0.05 in 2014, and the most recent fiscal year payment was CN¥0.12. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Zhejiang Shuanghuan DrivelineLtd has been growing its earnings per share at 31% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Zhejiang Shuanghuan DrivelineLtd will make a great income stock. While Zhejiang Shuanghuan DrivelineLtd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 17 Zhejiang Shuanghuan DrivelineLtd analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.