Zhejiang Guyuelongshan Shaoxing WineLtd (SHSE:600059) Is Increasing Its Dividend To CN¥0.14

Zhejiang Guyuelongshan Shaoxing Wine Co.,Ltd (SHSE:600059) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of May to CN¥0.14. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

See our latest analysis for Zhejiang Guyuelongshan Shaoxing WineLtd

Zhejiang Guyuelongshan Shaoxing WineLtd's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Zhejiang Guyuelongshan Shaoxing WineLtd's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

EPS is set to fall by 28.5% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 44%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from CN¥0.10 total annually to CN¥0.14. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Zhejiang Guyuelongshan Shaoxing WineLtd has impressed us by growing EPS at 17% per year over the past five years. Zhejiang Guyuelongshan Shaoxing WineLtd definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Zhejiang Guyuelongshan Shaoxing WineLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think Zhejiang Guyuelongshan Shaoxing WineLtd will make a great income stock. 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.

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. To that end, Zhejiang Guyuelongshan Shaoxing WineLtd has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Zhejiang Guyuelongshan Shaoxing WineLtd 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.