Chongqing Fuling Zhacai Group (SZSE:002507) Has Announced That Its Dividend Will Be Reduced To CN¥0.30

Chongqing Fuling Zhacai Group Co., Ltd.'s (SZSE:002507) dividend is being reduced from last year's payment covering the same period to CN¥0.30 on the 18th of June. This means that the annual payment will be 2.2% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Chongqing Fuling Zhacai Group

Chongqing Fuling Zhacai Group's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Chongqing Fuling Zhacai Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 29.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CN¥0.0308 in 2014, and the most recent fiscal year payment was CN¥0.30. This means that it has been growing its distributions at 26% per annum over that time. Chongqing Fuling Zhacai Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Chongqing Fuling Zhacai Group hasn't seen much change in its earnings per share over the last five years. The company has been growing at a pretty soft 1.2% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Chongqing Fuling Zhacai Group's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Chongqing Fuling Zhacai Group is a great stock to add to your portfolio if income is your focus.

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. For instance, we've picked out 1 warning sign for Chongqing Fuling Zhacai Group that investors should take into consideration. 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.