Neway Valve (Suzhou) (SHSE:603699) Is Increasing Its Dividend To CN¥0.52

The board of Neway Valve (Suzhou) Co., Ltd. (SHSE:603699) has announced that it will be paying its dividend of CN¥0.52 on the 10th of July, an increased payment from last year's comparable dividend. This will take the annual payment to 3.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Neway Valve (Suzhou)

Neway Valve (Suzhou)'s Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last dividend, Neway Valve (Suzhou) is earning enough to cover the payment, but then it makes up 104% of 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.

The next year is set to see EPS grow by 29.8%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of CN¥0.35 in 2014 to the most recent total annual payment of CN¥0.52. This means that it has been growing its distributions at 4.0% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

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 Neway Valve (Suzhou) has been growing its earnings per share at 20% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Neway Valve (Suzhou) could prove to be a strong dividend payer.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Neway Valve (Suzhou) will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Neway Valve (Suzhou) that investors should know about before committing capital to this stock. Is Neway Valve (Suzhou) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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