ShenZhen Woer Heat-Shrinkable MaterialLtd (SZSE:002130) Is Increasing Its Dividend To CN¥0.17

ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) will increase its dividend from last year's comparable payment on the 29th of May to CN¥0.17. This takes the annual payment to 1.2% of the current stock price, which unfortunately is below what the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that ShenZhen Woer Heat-Shrinkable MaterialLtd's stock price has increased by 114% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for ShenZhen Woer Heat-Shrinkable MaterialLtd

ShenZhen Woer Heat-Shrinkable MaterialLtd's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, ShenZhen Woer Heat-Shrinkable MaterialLtd was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 13.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, 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. Since 2014, the dividend has gone from CN¥0.015 total annually to CN¥0.17. This works out to be a compound annual growth rate (CAGR) of approximately 27% 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

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that ShenZhen Woer Heat-Shrinkable MaterialLtd has grown earnings per share at 94% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like ShenZhen Woer Heat-Shrinkable MaterialLtd's Dividend

Overall, a dividend increase is always good, and we think that ShenZhen Woer Heat-Shrinkable MaterialLtd is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for ShenZhen Woer Heat-Shrinkable MaterialLtd you should be aware of, and 1 of them is significant. 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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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.