China Railway Group (SHSE:601390) Is Paying Out A Larger Dividend Than Last Year

China Railway Group Limited's (SHSE:601390) dividend will be increasing from last year's payment of the same period to CN¥0.21 on 26th of July. Based on this payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

View our latest analysis for China Railway Group

China Railway Group's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, China Railway Group's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 30.9% over the next year. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CN¥0.066 in 2014, and the most recent fiscal year payment was CN¥0.21. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. It's encouraging to see that China Railway Group 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 China Railway Group's prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, China Railway Group has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is China Railway Group 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.

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