Shanghai Hanbell Precise Machinery (SZSE:002158) Has Announced That It Will Be Increasing Its Dividend To CN¥0.58

Shanghai Hanbell Precise Machinery Co., Ltd.'s (SZSE:002158) dividend will be increasing from last year's payment of the same period to CN¥0.58 on 7th of June. This will take the annual payment to 3.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Shanghai Hanbell Precise Machinery

Shanghai Hanbell Precise Machinery's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Shanghai Hanbell Precise Machinery was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 35.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

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 dividend has gone from CN¥0.115 total annually to CN¥0.58. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Shanghai Hanbell Precise Machinery 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

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. It's encouraging to see that Shanghai Hanbell Precise Machinery has been growing its earnings per share at 35% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Shanghai Hanbell Precise Machinery Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Shanghai Hanbell Precise Machinery that investors need to be conscious of moving forward. 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.