Shenzhen Ridge Engineering Consulting (SZSE:300977) Has Announced That It Will Be Increasing Its Dividend To CN¥0.22

The board of Shenzhen Ridge Engineering Consulting Co., Ltd. (SZSE:300977) has announced that it will be paying its dividend of CN¥0.22 on the 30th of May, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

Check out our latest analysis for Shenzhen Ridge Engineering Consulting

Shenzhen Ridge Engineering Consulting's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Shenzhen Ridge Engineering Consulting was paying out 93% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Shenzhen Ridge Engineering Consulting's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2021, the dividend has gone from CN¥0.264 total annually to CN¥0.22. This works out to be a decline of approximately 5.9% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Shenzhen Ridge Engineering Consulting's EPS has fallen by approximately 40% per year during the past three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Shenzhen Ridge Engineering Consulting's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Shenzhen Ridge Engineering Consulting is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Shenzhen Ridge Engineering Consulting that investors need to be conscious of moving forward. Is Shenzhen Ridge Engineering Consulting not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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