Shenzhen Minglida Precision Technology (SZSE:301268) Is Paying Out A Larger Dividend Than Last Year

The board of Shenzhen Minglida Precision Technology Co., Ltd. (SZSE:301268) has announced that it will be paying its dividend of CN¥0.25 on the 11th of June, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 2.9%, providing a nice boost to shareholder returns.

See our latest analysis for Shenzhen Minglida Precision Technology

Shenzhen Minglida Precision Technology's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Looking forward, earnings per share is forecast to rise by 69.1% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 46% which brings it into quite a comfortable range.

Shenzhen Minglida Precision Technology Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from an annual total of CN¥0.20 in 2022 to the most recent total annual payment of CN¥0.50. This implies that the company grew its distributions at a yearly rate of about 58% over that duration. Shenzhen Minglida Precision Technology has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 4.0% per year. Shenzhen Minglida Precision Technology's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Shenzhen Minglida Precision Technology's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Shenzhen Minglida Precision Technology will make a great income stock. 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.

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. Taking the debate a bit further, we've identified 3 warning signs for Shenzhen Minglida Precision Technology that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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