Zhejiang Weixing Industrial Development (SZSE:002003) Is Increasing Its Dividend To CN¥0.45

Zhejiang Weixing Industrial Development Co., Ltd. (SZSE:002003) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of May to CN¥0.45. The payment will take the dividend yield to 3.7%, which is in line with the average for the industry.

See our latest analysis for Zhejiang Weixing Industrial Development

Zhejiang Weixing Industrial Development's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Zhejiang Weixing Industrial Development was paying out quite a large proportion of both earnings and cash flow, with the dividend being 403% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

EPS is set to grow by 30.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.

Zhejiang Weixing Industrial Development Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was CN¥0.233, compared to the most recent full-year payment of CN¥0.45. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Zhejiang Weixing Industrial Development Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Zhejiang Weixing Industrial Development has been growing its earnings per share at 8.4% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

We should note that Zhejiang Weixing Industrial Development has issued stock equal to 13% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Zhejiang Weixing Industrial Development's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Zhejiang Weixing Industrial Development's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. For instance, we've picked out 2 warning signs for Zhejiang Weixing Industrial Development that investors should take into consideration. Is Zhejiang Weixing Industrial Development 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.