Zhejiang TongLi Transmission Technology's (SZSE:301255) Shareholders Will Receive A Smaller Dividend Than Last Year

Zhejiang TongLi Transmission Technology Co., Ltd. (SZSE:301255) is reducing its dividend from last year's comparable payment to CN¥0.50 on the 12th of June. This payment takes the dividend yield to 1.5%, which only provides a modest boost to overall returns.

Check out our latest analysis for Zhejiang TongLi Transmission Technology

Zhejiang TongLi Transmission Technology's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Zhejiang TongLi Transmission Technology was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

If the trend of the last few years continues, EPS will grow by 8.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 72% by next year, which is in a pretty sustainable range.

Zhejiang TongLi Transmission Technology Doesn't Have A Long Payment History

It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

We Could See Zhejiang TongLi Transmission Technology's Dividend Growing

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Zhejiang TongLi Transmission Technology has seen EPS rising for the last five years, at 8.7% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Zhejiang TongLi Transmission Technology is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Zhejiang TongLi Transmission Technology you should be aware of, and 1 of them is concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.