Shenzhen Honor Electronic (SZSE:300870) Is Increasing Its Dividend To CN¥0.34

Shenzhen Honor Electronic Co., Ltd. (SZSE:300870) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of May to CN¥0.34. Even though the dividend went up, the yield is still quite low at only 0.7%.

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 Shenzhen Honor Electronic's stock price has increased by 35% 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 Shenzhen Honor Electronic

Shenzhen Honor Electronic's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Shenzhen Honor Electronic is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 71.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 7.3%, which is in the range that makes us comfortable with the sustainability of the dividend.

Shenzhen Honor Electronic's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2021, the dividend has gone from CN¥0.33 total annually to CN¥0.34. This means that it has been growing its distributions at 1.0% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

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. Shenzhen Honor Electronic has impressed us by growing EPS at 24% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Shenzhen Honor Electronic's Dividend

Overall, we always like to see the dividend being raised, but we don't think Shenzhen Honor Electronic 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. We don't think Shenzhen Honor Electronic 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Shenzhen Honor Electronic (1 doesn't sit too well with us!) 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.