Fujian Longking's (SHSE:600388) Dividend Will Be Increased To CN¥0.20

Fujian Longking Co., Ltd.'s (SHSE:600388) dividend will be increasing from last year's payment of the same period to CN¥0.20 on 30th of May. This takes the annual payment to 1.6% of the current stock price, which is about average for the industry.

View our latest analysis for Fujian Longking

Fujian Longking's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Fujian Longking's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 14%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from CN¥0.132 total annually to CN¥0.20. This implies that the company grew its distributions at a yearly rate of about 4.2% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Come By

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. In the last five years, Fujian Longking's earnings per share has shrunk at approximately 8.6% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Fujian Longking's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Fujian Longking'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. We don't think Fujian Longking 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. 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 2 warning signs for Fujian Longking that investors need to be conscious of moving forward. Is Fujian Longking not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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