United Faith Auto-EngineeringLtd (SZSE:301112) Will Pay A Smaller Dividend Than Last Year

United Faith Auto-Engineering Co.,Ltd. (SZSE:301112) has announced that on 13th of June, it will be paying a dividend ofCN¥0.12, which a reduction from last year's comparable dividend. 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 United Faith Auto-EngineeringLtd

United Faith Auto-EngineeringLtd Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, United Faith Auto-EngineeringLtd's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Looking forward, EPS could fall by 29.4% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 106%, which could put the dividend under pressure if earnings don't start to improve.

United Faith Auto-EngineeringLtd's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2022, the dividend has gone from CN¥0.726 total annually to CN¥0.12. The dividend has fallen 83% over that period. 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 Potential Is Shaky

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. United Faith Auto-EngineeringLtd's earnings per share has shrunk at 29% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 3 warning signs for United Faith Auto-EngineeringLtd you should be aware of, and 1 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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