Hang Zhou Radical Energy-Saving Technology's (SZSE:300652) Dividend Will Be Increased To CN¥0.50

The board of Hang Zhou Radical Energy-Saving Technology Co., Ltd. (SZSE:300652) has announced that it will be paying its dividend of CN¥0.50 on the 28th of May, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.

View our latest analysis for Hang Zhou Radical Energy-Saving Technology

Hang Zhou Radical Energy-Saving Technology's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Hang Zhou Radical Energy-Saving Technology's dividend was only 43% of earnings, however it was paying out 624% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share could rise by 7.4% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Hang Zhou Radical Energy-Saving Technology's Dividend Has Lacked Consistency

It's comforting to see that Hang Zhou Radical Energy-Saving Technology has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the annual payment back then was CN¥0.10, compared to the most recent full-year payment of CN¥0.50. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Hang Zhou Radical Energy-Saving Technology Could Grow Its Dividend

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. Hang Zhou Radical Energy-Saving Technology has impressed us by growing EPS at 7.4% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Hang Zhou Radical Energy-Saving Technology's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Hang Zhou Radical Energy-Saving Technology has 3 warning signs (and 1 which is concerning) we think you should know about. Is Hang Zhou Radical Energy-Saving Technology not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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