Guangdong Xinbao Electrical Appliances Holdings (SZSE:002705) Is Due To Pay A Dividend Of CN¥0.40

Guangdong Xinbao Electrical Appliances Holdings Co., Ltd's (SZSE:002705) investors are due to receive a payment of CN¥0.40 per share on 14th of June. This payment means the dividend yield will be 2.6%, which is below the average for the industry.

See our latest analysis for Guangdong Xinbao Electrical Appliances Holdings

Guangdong Xinbao Electrical Appliances Holdings' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Guangdong Xinbao Electrical Appliances Holdings was paying only paying out a fraction of earnings, but the payment was a massive 279% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 33.5%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.118, compared to the most recent full-year payment of CN¥0.40. This means that it has been growing its distributions at 13% per annum over that time. Guangdong Xinbao Electrical Appliances Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Guangdong Xinbao Electrical Appliances Holdings has grown earnings per share at 13% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Guangdong Xinbao Electrical Appliances Holdings that you should be aware of before investing. Is Guangdong Xinbao Electrical Appliances Holdings 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.