Zhejiang Sanhua Intelligent ControlsLtd (SZSE:002050) Will Pay A Dividend Of CN¥0.10

The board of Zhejiang Sanhua Intelligent Controls Co.,Ltd (SZSE:002050) has announced that it will pay a dividend on the 23rd of October, with investors receiving CN¥0.10 per share. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

Check out our latest analysis for Zhejiang Sanhua Intelligent ControlsLtd

Zhejiang Sanhua Intelligent ControlsLtd's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Zhejiang Sanhua Intelligent ControlsLtd's dividend was only 43% of earnings, however it was paying out 146% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 51.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.0455, compared to the most recent full-year payment of CN¥0.30. This means that it has been growing its distributions at 21% per annum over that time. Zhejiang Sanhua Intelligent ControlsLtd 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. Zhejiang Sanhua Intelligent ControlsLtd has impressed us by growing EPS at 18% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Zhejiang Sanhua Intelligent ControlsLtd's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Zhejiang Sanhua Intelligent ControlsLtd 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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.