Guangzhou Zhiguang ElectricLtd (SZSE:002169) Will Pay A Dividend Of CN¥0.10

The board of Guangzhou Zhiguang Electric Co.,Ltd (SZSE:002169) has announced that it will pay a dividend on the 11th of July, with investors receiving CN¥0.10 per share. This makes the dividend yield 2.3%, which will augment investor returns quite nicely.

See our latest analysis for Guangzhou Zhiguang ElectricLtd

Guangzhou Zhiguang ElectricLtd's Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. Despite not generating a profit, Guangzhou Zhiguang ElectricLtd is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Looking forward, earnings per share could 18.1% over the next year if the trend of the last few years can't be broken. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from CN¥0.015 total annually to CN¥0.10. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. 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.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Guangzhou Zhiguang ElectricLtd's earnings per share has shrunk at 18% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

We're Not Big Fans Of Guangzhou Zhiguang ElectricLtd's Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Guangzhou Zhiguang ElectricLtd that investors should know about before committing capital to this stock. Is Guangzhou Zhiguang ElectricLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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