Chengdu Rainbow Appliance (Group) Shares (SZSE:003023) Is Paying Out A Larger Dividend Than Last Year

The board of Chengdu Rainbow Appliance (Group) Shares Co., Ltd. (SZSE:003023) has announced that it will be paying its dividend of CN¥0.40 on the 13th of June, an increased payment from last year's comparable dividend. This takes the annual payment to 2.6% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Chengdu Rainbow Appliance (Group) Shares

Chengdu Rainbow Appliance (Group) Shares' Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Chengdu Rainbow Appliance (Group) Shares' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Unless the company can turn things around, EPS could fall by 9.5% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 42%, which is definitely feasible to continue.

Chengdu Rainbow Appliance (Group) Shares Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of CN¥0.308 in 2021 to the most recent total annual payment of CN¥0.40. This means that it has been growing its distributions at 9.1% per annum over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Chengdu Rainbow Appliance (Group) Shares to be a consistent dividend paying stock.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. In the last five years, Chengdu Rainbow Appliance (Group) Shares' earnings per share has shrunk at approximately 9.5% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Chengdu Rainbow Appliance (Group) Shares' Dividend

Overall, we always like to see the dividend being raised, but we don't think Chengdu Rainbow Appliance (Group) Shares will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Chengdu Rainbow Appliance (Group) Shares that investors should take into consideration. 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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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.