ShenZhen QiangRui Precision Technology (SZSE:301128) Has Announced That It Will Be Increasing Its Dividend To CN¥0.70

ShenZhen QiangRui Precision Technology Co., Ltd. (SZSE:301128) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to CN¥0.70. This makes the dividend yield about the same as the industry average at 1.7%.

See our latest analysis for ShenZhen QiangRui Precision Technology

ShenZhen QiangRui Precision Technology's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, ShenZhen QiangRui Precision Technology's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.

Looking forward, could fall by 6.9% if the company can't turn things around from the last few years. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 94%, meaning that most of the company's earnings is being paid out to shareholders.

ShenZhen QiangRui Precision Technology 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. Since 2022, the dividend has gone from CN¥0.50 total annually to CN¥0.70. This means that it has been growing its distributions at 18% per annum over that time. 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.

Dividend Growth May Be Hard To Come By

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that ShenZhen QiangRui Precision Technology's earnings per share has fallen at approximately 6.9% per year over the past three years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

ShenZhen QiangRui Precision Technology'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 would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for ShenZhen QiangRui Precision Technology you should be aware of, and 3 of them don't sit too well with us. Is ShenZhen QiangRui Precision Technology 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.