Gaona Aero Material (SZSE:300034) Has Announced That Its Dividend Will Be Reduced To CN¥0.124

Gaona Aero Material Co., Ltd.'s (SZSE:300034) dividend is being reduced from last year's payment covering the same period to CN¥0.124 on the 11th of July. However, the dividend yield of 0.8% still remains in a typical range for the industry.

View our latest analysis for Gaona Aero Material

Gaona Aero Material's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, Gaona Aero Material's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 97.9%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.0514 in 2014, and the most recent fiscal year payment was CN¥0.124. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Gaona Aero Material might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Gaona Aero Material has impressed us by growing EPS at 22% 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.

We Really Like Gaona Aero Material's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Gaona Aero Material does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Gaona Aero Material that investors should take into consideration. Is Gaona Aero Material not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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