Guangdong Nedfon Air System (SZSE:301043) Will Pay A Larger Dividend Than Last Year At CN¥0.88

Guangdong Nedfon Air System Co., Ltd.'s (SZSE:301043) dividend will be increasing from last year's payment of the same period to CN¥0.88 on 29th of May. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for Guangdong Nedfon Air System

Guangdong Nedfon Air System's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, Guangdong Nedfon Air System is earning enough to cover the payment, but then it makes up 104% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 7.9% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 69% by next year, which is in a pretty sustainable range.

Guangdong Nedfon Air System Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The annual payment during the last 2 years was CN¥0.08 in 2022, and the most recent fiscal year payment was CN¥0.88. This implies that the company grew its distributions at a yearly rate of about 232% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

We Could See Guangdong Nedfon Air System's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Guangdong Nedfon Air System has grown earnings per share at 7.9% per 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.

Our Thoughts On Guangdong Nedfon Air System's Dividend

Overall, we always like to see the dividend being raised, but we don't think Guangdong Nedfon Air System 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Guangdong Nedfon Air System that investors should know about before committing capital to this stock. Is Guangdong Nedfon Air System not quite the opportunity you were looking for? Why not check out our selection of top 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.