Zhenjiang Dongfang Electric Heating TechnologyLtd (SZSE:300217) Is Increasing Its Dividend To CN¥0.068

Zhenjiang Dongfang Electric Heating Technology Co.,Ltd (SZSE:300217) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of May to CN¥0.068. Even though the dividend went up, the yield is still quite low at only 1.6%.

Check out our latest analysis for Zhenjiang Dongfang Electric Heating TechnologyLtd

Zhenjiang Dongfang Electric Heating TechnologyLtd's 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. Zhenjiang Dongfang Electric Heating TechnologyLtd is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 6.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 17%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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. The annual payment during the last 10 years was CN¥0.0268 in 2014, and the most recent fiscal year payment was CN¥0.068. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Zhenjiang Dongfang Electric Heating TechnologyLtd has grown earnings per share at 31% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Zhenjiang Dongfang Electric Heating TechnologyLtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Zhenjiang Dongfang Electric Heating TechnologyLtd (of which 2 are a bit unpleasant!) you should know about. Is Zhenjiang Dongfang Electric Heating TechnologyLtd 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.