Baoding Dongli MachineryLtd (SZSE:301298) Is Increasing Its Dividend To CN¥0.30

The board of Baoding Dongli Machinery Co.,Ltd. (SZSE:301298) has announced that it will be paying its dividend of CN¥0.30 on the 15th of May, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.0%, which is fairly typical for the industry.

View our latest analysis for Baoding Dongli MachineryLtd

Baoding Dongli MachineryLtd's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Baoding Dongli MachineryLtd's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 9.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.

Baoding Dongli MachineryLtd's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from an annual total of CN¥0.60 in 2022 to the most recent total annual payment of CN¥0.30. This works out to a decline of approximately 50% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Baoding Dongli MachineryLtd Could Grow Its Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Baoding Dongli MachineryLtd has seen EPS rising for the last five years, at 9.7% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Baoding Dongli MachineryLtd's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Baoding Dongli MachineryLtd is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Baoding Dongli MachineryLtd (1 shouldn't be ignored!) that you should be aware of before investing. Is Baoding Dongli MachineryLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.