Xuchang KETOP Testing Research InstituteLtd (SZSE:003008) Has Announced That Its Dividend Will Be Reduced To CN¥0.30

Xuchang KETOP Testing Research Institute Co.,Ltd (SZSE:003008) has announced that on 27th of May, it will be paying a dividend ofCN¥0.30, which a reduction from last year's comparable dividend. This means that the annual payment will be 1.4% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Xuchang KETOP Testing Research InstituteLtd

Xuchang KETOP Testing Research InstituteLtd'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. The last dividend was quite easily covered by Xuchang KETOP Testing Research InstituteLtd's earnings. This means that a large portion of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 16.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 48%, which is definitely feasible to continue.

Xuchang KETOP Testing Research InstituteLtd's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of CN¥0.60 in 2021 to the most recent total annual payment of CN¥0.30. This works out to a decline of approximately 50% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 17% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Xuchang KETOP Testing Research InstituteLtd's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Xuchang KETOP Testing Research InstituteLtd (of which 1 can't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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