Heilongjiang Agriculture's (SHSE:600598) Dividend Will Be Increased To CN¥0.44

Heilongjiang Agriculture Company Limited (SHSE:600598) will increase its dividend from last year's comparable payment on the 24th of May to CN¥0.44. This makes the dividend yield 3.3%, which is above the industry average.

Check out our latest analysis for Heilongjiang Agriculture

Heilongjiang Agriculture's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 72% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 6.3%. If the dividend continues on this path, the payout ratio could be 70% by next year, which we think can be pretty sustainable going forward.

Heilongjiang Agriculture's Dividend Has Lacked Consistency

Heilongjiang Agriculture has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was CN¥0.39, compared to the most recent full-year payment of CN¥0.44. This works out to be a compound annual growth rate (CAGR) of approximately 1.3% 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's Growth Prospects Are Limited

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. However, Heilongjiang Agriculture has only grown its earnings per share at 2.4% per annum over the past five years. Heilongjiang Agriculture's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Heilongjiang Agriculture's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Heilongjiang Agriculture that you should be aware of before investing. Is Heilongjiang Agriculture not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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