Yuhuan CNC Machine ToolLtd (SZSE:002903) Is Increasing Its Dividend To CN¥0.20

The board of Yuhuan CNC Machine Tool Co.,Ltd. (SZSE:002903) has announced that it will be paying its dividend of CN¥0.20 on the 21st of May, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.

See our latest analysis for Yuhuan CNC Machine ToolLtd

Yuhuan CNC Machine ToolLtd's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before this announcement, Yuhuan CNC Machine ToolLtd was paying out 95% of earnings, but a comparatively small 30% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS could expand by 16.4% if the company continues along the path it has been on recently. If recent patterns in the dividend continue, the payout ratio in 12 months could be 83% which is a bit high but can definitely be sustainable.

Yuhuan CNC Machine ToolLtd's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The most recent annual payment of CN¥0.20 is about the same as the annual payment 6 years ago. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Yuhuan CNC Machine ToolLtd Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Yuhuan CNC Machine ToolLtd has impressed us by growing EPS at 16% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Yuhuan CNC Machine ToolLtd's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Yuhuan CNC Machine ToolLtd is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for Yuhuan CNC Machine ToolLtd that investors should take into consideration. 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.