Shanxi Blue Flame Holding's (SZSE:000968) Dividend Will Be Increased To CN¥0.17

The board of Shanxi Blue Flame Holding Company Limited (SZSE:000968) has announced that it will be paying its dividend of CN¥0.17 on the 11th of July, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 2.7% is only a modest boost to shareholder returns.

Check out our latest analysis for Shanxi Blue Flame Holding

Shanxi Blue Flame Holding's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, Shanxi Blue Flame Holding's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 67.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

Shanxi Blue Flame Holding's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of CN¥0.10 in 2019 to the most recent total annual payment of CN¥0.17. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Shanxi Blue Flame Holding's EPS has declined at around 7.9% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Shanxi Blue Flame Holding's Dividend

Overall, we always like to see the dividend being raised, but we don't think Shanxi Blue Flame Holding will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

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. As an example, we've identified 1 warning sign for Shanxi Blue Flame Holding that you should be aware of before investing. 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.

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