Xinjiang Communications Construction Group (SZSE:002941) Is Increasing Its Dividend To CN¥0.16

The board of Xinjiang Communications Construction Group Co., Ltd. (SZSE:002941) has announced that it will be paying its dividend of CN¥0.16 on the 16th of July, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average.

View our latest analysis for Xinjiang Communications Construction Group

Xinjiang Communications Construction Group's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Xinjiang Communications Construction Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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.

Looking forward, earnings per share could rise by 11.1% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

Xinjiang Communications Construction Group's Dividend Has Lacked Consistency

Xinjiang Communications Construction Group has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the dividend has gone from CN¥0.145 total annually to CN¥0.16. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Xinjiang Communications Construction Group has grown earnings per share at 11% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Xinjiang Communications Construction Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Xinjiang Communications Construction Group's payments are rock solid. While Xinjiang Communications Construction Group is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Xinjiang Communications Construction Group (1 is potentially serious!) that you should be aware of before investing. 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.

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