Shenzhen Mingdiao DecorationLtd (SZSE:002830) Is Increasing Its Dividend To CN¥0.24

Shenzhen Mingdiao Decoration Co.,Ltd. (SZSE:002830) will increase its dividend from last year's comparable payment on the 7th of June to CN¥0.24. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

View our latest analysis for Shenzhen Mingdiao DecorationLtd

Shenzhen Mingdiao DecorationLtd's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last dividend, Shenzhen Mingdiao DecorationLtd is earning enough to cover the payment, but then it makes up 447% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 1.1% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 68% by next year, which we think can be pretty sustainable going forward.

Shenzhen Mingdiao DecorationLtd Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of CN¥0.125 in 2017 to the most recent total annual payment of CN¥0.24. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. 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 Shenzhen Mingdiao DecorationLtd to be a consistent dividend paying stock.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately, Shenzhen Mingdiao DecorationLtd's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Shenzhen Mingdiao DecorationLtd is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Shenzhen Mingdiao DecorationLtd will make a great income stock. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Shenzhen Mingdiao DecorationLtd that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.