Sinosteel Engineering & Technology (SZSE:000928) Is Paying Out A Larger Dividend Than Last Year

The board of Sinosteel Engineering & Technology Co., Ltd. (SZSE:000928) has announced that it will be paying its dividend of CN¥0.266 on the 6th of June, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.2%, providing a nice boost to shareholder returns.

View our latest analysis for Sinosteel Engineering & Technology

Sinosteel Engineering & Technology'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, Sinosteel Engineering & Technology's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 36.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sinosteel Engineering & Technology's Dividend Has Lacked Consistency

Sinosteel Engineering & Technology 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. Since 2017, the dividend has gone from CN¥0.0278 total annually to CN¥0.266. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Sinosteel Engineering & Technology Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sinosteel Engineering & Technology has impressed us by growing EPS at 5.5% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

An additional note is that the company has been raising capital by issuing stock equal to 11% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Sinosteel Engineering & Technology's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Sinosteel Engineering & Technology's payments are rock solid. While Sinosteel Engineering & Technology is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Sinosteel Engineering & Technology has 3 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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