Changhong Huayi Compressor (SZSE:000404) Has Announced That It Will Be Increasing Its Dividend To CN¥0.25

Changhong Huayi Compressor Co., Ltd.'s (SZSE:000404) dividend will be increasing from last year's payment of the same period to CN¥0.25 on 26th of June. This takes the dividend yield to 4.4%, which shareholders will be pleased with.

View our latest analysis for Changhong Huayi Compressor

Changhong Huayi Compressor's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Changhong Huayi Compressor's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 45.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of CN¥0.03 in 2014 to the most recent total annual payment of CN¥0.25. This implies that the company grew its distributions at a yearly rate of about 24% over that duration. Changhong Huayi Compressor has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Changhong Huayi Compressor has impressed us by growing EPS at 39% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Changhong Huayi Compressor Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Changhong Huayi Compressor is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Changhong Huayi Compressor that investors should take into consideration. Is Changhong Huayi Compressor 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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