Beijing WKW Automotive PartsLtd (SZSE:002662) Has Announced That It Will Be Increasing Its Dividend To CN¥0.10

The board of Beijing WKW Automotive Parts Co.,Ltd. (SZSE:002662) has announced that it will be paying its dividend of CN¥0.10 on the 29th of April, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 3.0%, providing a nice boost to shareholder returns.

See our latest analysis for Beijing WKW Automotive PartsLtd

Beijing WKW Automotive PartsLtd's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Beijing WKW Automotive PartsLtd was paying a whopping 131% as a dividend, but this only made up 29% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 41.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of CN¥0.13 in 2014 to the most recent total annual payment of CN¥0.10. Doing the maths, this is a decline of about 2.6% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

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. Beijing WKW Automotive PartsLtd has impressed us by growing EPS at 41% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Beijing WKW Automotive PartsLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Beijing WKW Automotive PartsLtd's payments are rock solid. While Beijing WKW Automotive PartsLtd is earning enough to cover the payments, the cash flows are lacking. We don't think Beijing WKW Automotive PartsLtd is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Beijing WKW Automotive PartsLtd that investors should take into consideration. Is Beijing WKW Automotive PartsLtd 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.