Wuxi Smart Auto-Control Engineering's (SZSE:002877) Dividend Will Be Increased To CN¥0.045

The board of Wuxi Smart Auto-Control Engineering Co., Ltd. (SZSE:002877) has announced that it will be increasing its dividend by 29% on the 25th of June to CN¥0.045, up from last year's comparable payment of CN¥0.035. Although the dividend is now higher, the yield is only 0.6%, which is below the industry average.

View our latest analysis for Wuxi Smart Auto-Control Engineering

Wuxi Smart Auto-Control Engineering's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Wuxi Smart Auto-Control Engineering was earning enough to cover the dividend, but free cash flows weren't positive. 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.

Over the next year, EPS could expand by 9.1% if recent trends continue. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

Wuxi Smart Auto-Control Engineering's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the dividend has gone from CN¥0.0294 total annually to CN¥0.045. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Wuxi Smart Auto-Control Engineering might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Wuxi Smart Auto-Control Engineering has grown earnings per share at 9.1% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Wuxi Smart Auto-Control Engineering's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Wuxi Smart Auto-Control Engineering is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Wuxi Smart Auto-Control Engineering (1 is potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com