Eaglerise Electric & Electronic (China) (SZSE:002922) Is Increasing Its Dividend To CN¥0.30

The board of Eaglerise Electric & Electronic (China) Co., Ltd (SZSE:002922) has announced that it will be paying its dividend of CN¥0.30 on the 10th of May, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 1.7%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Eaglerise Electric & Electronic (China)'s stock price has increased by 44% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Eaglerise Electric & Electronic (China)

Eaglerise Electric & Electronic (China)'s Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Eaglerise Electric & Electronic (China)'s earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 78.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Eaglerise Electric & Electronic (China)'s Dividend Has Lacked Consistency

Eaglerise Electric & Electronic (China) has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2018, the dividend has gone from CN¥0.118 total annually to CN¥0.30. This means that it has been growing its distributions at 17% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Eaglerise Electric & Electronic (China) has grown earnings per share at 27% per year over the past five years. Eaglerise Electric & Electronic (China) is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

An additional note is that the company has been raising capital by issuing stock equal to 30% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Eaglerise Electric & Electronic (China) 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Eaglerise Electric & Electronic (China) (of which 1 is a bit unpleasant!) you should know about. Is Eaglerise Electric & Electronic (China) not quite the opportunity you were looking for? Why not check out our selection of top 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.