Guangdong Shenling Environmental Systems' (SZSE:301018) Dividend Is Being Reduced To CN¥0.16

Guangdong Shenling Environmental Systems Co., Ltd. (SZSE:301018) is reducing its dividend from last year's comparable payment to CN¥0.16 on the 31st of May. This means that the annual payment is 0.7% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Guangdong Shenling Environmental Systems

Guangdong Shenling Environmental Systems' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Guangdong Shenling Environmental Systems was earning enough to cover the dividend, but free cash flows weren't positive. 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.

Over the next year, EPS is forecast to expand by 186.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 13% by next year, which is in a pretty sustainable range.

Guangdong Shenling Environmental Systems' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2021, the annual payment back then was CN¥0.30, compared to the most recent full-year payment of CN¥0.16. This works out to a decline of approximately 47% 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.

Dividend Growth May Be Hard To Come By

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. In the last five years, Guangdong Shenling Environmental Systems' earnings per share has shrunk at approximately 5.6% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Guangdong Shenling Environmental Systems that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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