Chongqing Brewery (SHSE:600132) Has Announced That It Will Be Increasing Its Dividend To CN¥2.80

The board of Chongqing Brewery Co., Ltd. (SHSE:600132) has announced that it will be paying its dividend of CN¥2.80 on the 19th of June, an increased payment from last year's comparable dividend. This will take the annual payment to 4.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Chongqing Brewery

Chongqing Brewery's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 97% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 60%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 28.6%. If the dividend continues along recent trends, we estimate the payout ratio could reach 93%, which is on the higher side, but certainly still feasible.

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 annual payment back then was CN¥0.20, compared to the most recent full-year payment of CN¥2.80. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Chongqing Brewery Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Chongqing Brewery has impressed us by growing EPS at 28% per year over the past five years. Although earnings per share is up nicely Chongqing Brewery is paying out 97% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On Chongqing Brewery's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Chongqing Brewery's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. 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 Chongqing Brewery that investors should know about before committing capital to this stock. Is Chongqing Brewery 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.

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