Zhejiang Development GroupLtd's (SZSE:000906) Dividend Will Be Reduced To CN¥0.35

Zhejiang Development Group Co.,Ltd (SZSE:000906) has announced that on 29th of May, it will be paying a dividend ofCN¥0.35, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 4.4%.

See our latest analysis for Zhejiang Development GroupLtd

Zhejiang Development GroupLtd's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Zhejiang Development GroupLtd is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 96.6%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

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¥0.0297 in 2014 to the most recent total annual payment of CN¥0.35. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Zhejiang Development GroupLtd has grown earnings per share at 11% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Zhejiang Development GroupLtd you should be aware of, and 2 of them don't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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