Huadian Heavy Industries' (SHSE:601226) Shareholders Will Receive A Smaller Dividend Than Last Year

Huadian Heavy Industries Co., Ltd. (SHSE:601226) has announced that on 15th of July, it will be paying a dividend ofCN¥0.026, which a reduction from last year's comparable dividend. This means that the dividend yield is 0.5%, which is a bit low when comparing to other companies in the industry.

View our latest analysis for Huadian Heavy Industries

Huadian Heavy Industries' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Huadian Heavy Industries was paying a whopping 132% as a dividend, but this only made up 27% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 44.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

Huadian Heavy Industries' Dividend Has Lacked Consistency

Huadian Heavy Industries has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 9 years was CN¥0.10 in 2015, and the most recent fiscal year payment was CN¥0.026. This works out to a decline of approximately 74% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see that Huadian Heavy Industries has been growing its earnings per share at 11% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Huadian Heavy Industries' prospects of growing its dividend payments in the future.

Our Thoughts On Huadian Heavy Industries' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Huadian Heavy Industries is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Huadian Heavy Industries that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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