Sinoma Energy Conservation (SHSE:603126) Has Announced That Its Dividend Will Be Reduced To CN¥0.083

Sinoma Energy Conservation Ltd.'s (SHSE:603126) dividend is being reduced from last year's payment covering the same period to CN¥0.083 on the 28th of June. Despite the cut, the dividend yield of 1.5% will still be comparable to other companies in the industry.

See our latest analysis for Sinoma Energy Conservation

Sinoma Energy Conservation's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Sinoma Energy Conservation's dividend was only 37% of earnings, however it was paying out 2,220% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 2.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sinoma Energy Conservation Is Still Building Its Track Record

It is great to see that Sinoma Energy Conservation has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2015, the dividend has gone from CN¥0.0533 total annually to CN¥0.083. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. Sinoma Energy Conservation has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, Sinoma Energy Conservation has only grown its earnings per share at 2.9% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Sinoma Energy Conservation's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Sinoma Energy Conservation 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.

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. Taking the debate a bit further, we've identified 2 warning signs for Sinoma Energy Conservation that investors need to be conscious of moving forward. Is Sinoma Energy Conservation not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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