CECEP Guozhen Environmental Protection Technology (SZSE:300388) Is Reducing Its Dividend To CN¥0.13

CECEP Guozhen Environmental Protection Technology Co., Ltd. (SZSE:300388) is reducing its dividend from last year's comparable payment to CN¥0.13 on the 22nd of May. The dividend yield of 2.0% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for CECEP Guozhen Environmental Protection Technology

CECEP Guozhen Environmental Protection Technology's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, CECEP Guozhen Environmental Protection Technology's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 15.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.

CECEP Guozhen Environmental Protection Technology's Dividend Has Lacked Consistency

Looking back, CECEP Guozhen Environmental Protection Technology's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from CN¥0.0222 total annually to CN¥0.13. This means that it has been growing its distributions at 22% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, CECEP Guozhen Environmental Protection Technology's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, CECEP Guozhen Environmental Protection Technology could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On CECEP Guozhen Environmental Protection Technology's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think CECEP Guozhen Environmental Protection Technology is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for CECEP Guozhen Environmental Protection Technology (1 is potentially serious!) that you should be aware of before investing. Is CECEP Guozhen Environmental Protection Technology 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.