Jiangyin Electrical AlloyLtd (SZSE:300697) Is Increasing Its Dividend To CN¥0.20

Jiangyin Electrical Alloy Co.,Ltd (SZSE:300697) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of May to CN¥0.20. This makes the dividend yield about the same as the industry average at 1.9%.

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 Jiangyin Electrical AlloyLtd's stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Jiangyin Electrical AlloyLtd

Jiangyin Electrical AlloyLtd's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 100% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS could expand by 8.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.

Jiangyin Electrical AlloyLtd'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. The dividend has gone from an annual total of CN¥0.0481 in 2018 to the most recent total annual payment of CN¥0.20. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. Jiangyin Electrical AlloyLtd has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Jiangyin Electrical AlloyLtd Could Grow Its Dividend

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. It's encouraging to see that Jiangyin Electrical AlloyLtd has been growing its earnings per share at 8.8% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Jiangyin Electrical AlloyLtd will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Jiangyin Electrical AlloyLtd (of which 1 is concerning!) you should know about. 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.