Zhejiang Meida Industrial's (SZSE:002677) Dividend Will Be Increased To CN¥0.75

Zhejiang Meida Industrial Co., Ltd.'s (SZSE:002677) dividend will be increasing from last year's payment of the same period to CN¥0.75 on 24th of May. This takes the dividend yield to 7.2%, which shareholders will be pleased with.

See our latest analysis for Zhejiang Meida Industrial

Zhejiang Meida Industrial Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 15.5%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 111% over the next year.

Zhejiang Meida Industrial 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¥0.109, compared to the most recent full-year payment of CN¥0.75. This means that it has been growing its distributions at 21% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Zhejiang Meida Industrial May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Zhejiang Meida Industrial's EPS was effectively flat over the past five years, which could stop the company from paying more every year. So the company has struggled to grow its EPS yet it's still paying out 110% of its earnings. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Zhejiang Meida Industrial's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Zhejiang Meida Industrial that you should be aware of before investing. Is Zhejiang Meida Industrial 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.