Newonder Special ElectricLtd (SZSE:301120) Is Reducing Its Dividend To CN¥0.055

Newonder Special Electric Co.,Ltd. (SZSE:301120) has announced that on 28th of May, it will be paying a dividend ofCN¥0.055, which a reduction from last year's comparable dividend. This means that the dividend yield is 0.5%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Newonder Special ElectricLtd

Newonder Special ElectricLtd's 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. Before making this announcement, Newonder Special ElectricLtd was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Unless the company can turn things around, EPS could fall by 14.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 37%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Newonder Special ElectricLtd's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The annual payment during the last 2 years was CN¥0.133 in 2022, and the most recent fiscal year payment was CN¥0.055. This works out to a decline of approximately 59% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Newonder Special ElectricLtd's earnings per share has shrunk at 15% a year over the past five 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.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Newonder Special ElectricLtd that you should be aware of before investing. Is Newonder Special ElectricLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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