Guangzhou Huayan Precision MachineryLtd (SZSE:301138) Will Pay A Dividend Of CN¥0.50

The board of Guangzhou Huayan Precision Machinery Co.,Ltd. (SZSE:301138) has announced that it will pay a dividend of CN¥0.50 per share on the 7th of June. The dividend yield will be 4.2% based on this payment which is still above the industry average.

See our latest analysis for Guangzhou Huayan Precision MachineryLtd

Guangzhou Huayan Precision MachineryLtd Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 170% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

EPS is set to grow by 7.7% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 157% over the next year.

Guangzhou Huayan Precision MachineryLtd Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The annual payment during the last 2 years was CN¥0.40 in 2022, and the most recent fiscal year payment was CN¥1.00. This works out to be a compound annual growth rate (CAGR) of approximately 58% a year 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.

There Isn't Much Room To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Guangzhou Huayan Precision MachineryLtd has seen EPS rising for the last five years, at 7.7% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Guangzhou Huayan Precision MachineryLtd (of which 2 don't sit too well with us!) you should know about. Is Guangzhou Huayan Precision MachineryLtd 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.