Shenzhen KSTAR Science and Technology (SZSE:002518) Is Increasing Its Dividend To CN¥0.45

Shenzhen KSTAR Science and Technology Co., Ltd. (SZSE:002518) will increase its dividend from last year's comparable payment on the 16th of May to CN¥0.45. This takes the dividend yield to 2.0%, which shareholders will be pleased with.

View our latest analysis for Shenzhen KSTAR Science and Technology

Shenzhen KSTAR Science and Technology's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Shenzhen KSTAR Science and Technology's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 63.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Shenzhen KSTAR Science and Technology Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from CN¥0.0366 total annually to CN¥0.45. This works out to be a compound annual growth rate (CAGR) of approximately 29% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Shenzhen KSTAR Science and Technology has grown earnings per share at 25% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Shenzhen KSTAR Science and Technology's Dividend

Overall, we always like to see the dividend being raised, but we don't think Shenzhen KSTAR Science and Technology will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Shenzhen KSTAR Science and Technology has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. 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.