Guangzhou Ruoyuchen TechnologyLtd (SZSE:003010) Is Increasing Its Dividend To CN¥0.30

Guangzhou Ruoyuchen Technology Co.,Ltd.'s (SZSE:003010) dividend will be increasing from last year's payment of the same period to CN¥0.30 on 13th of June. This takes the annual payment to 1.9% of the current stock price, which is about average for the industry.

View our latest analysis for Guangzhou Ruoyuchen TechnologyLtd

Guangzhou Ruoyuchen TechnologyLtd's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Guangzhou Ruoyuchen TechnologyLtd's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, could fall by 10.6% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 76% in the next 12 months which is on the higher end of the range we would say is sustainable.

Guangzhou Ruoyuchen TechnologyLtd Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2021, the dividend has gone from CN¥0.08 total annually to CN¥0.30. This works out to be a compound annual growth rate (CAGR) of approximately 55% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Guangzhou Ruoyuchen TechnologyLtd's earnings per share has shrunk at 11% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Guangzhou Ruoyuchen TechnologyLtd's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Guangzhou Ruoyuchen TechnologyLtd's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. To that end, Guangzhou Ruoyuchen TechnologyLtd has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Guangzhou Ruoyuchen 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.