Zhejiang Sanhua Intelligent ControlsLtd (SZSE:002050) Is Increasing Its Dividend To CN¥0.25

Zhejiang Sanhua Intelligent Controls Co.,Ltd (SZSE:002050) will increase its dividend from last year's comparable payment on the 13th of June to CN¥0.25. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.

See our latest analysis for Zhejiang Sanhua Intelligent ControlsLtd

Zhejiang Sanhua Intelligent ControlsLtd's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Zhejiang Sanhua Intelligent ControlsLtd was paying a whopping 662% as a dividend, but this only made up 37% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 58.3% over the next year. If the dividend continues on this path, the payout ratio could be 28% 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 annual payment during the last 10 years was CN¥0.0455 in 2014, and the most recent fiscal year payment was CN¥0.30. This implies that the company grew its distributions at a yearly rate of about 21% 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.

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 Sanhua Intelligent ControlsLtd has grown earnings per share at 17% per year over the past five years. Zhejiang Sanhua Intelligent ControlsLtd definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Zhejiang Sanhua Intelligent ControlsLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think Zhejiang Sanhua Intelligent ControlsLtd will make a great income stock. While Zhejiang Sanhua Intelligent ControlsLtd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Zhejiang Sanhua Intelligent ControlsLtd that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.