Yantai China Pet Foods (SZSE:002891) Is Increasing Its Dividend To CN¥0.24

Yantai China Pet Foods Co., Ltd. (SZSE:002891) will increase its dividend from last year's comparable payment on the 5th of June to CN¥0.24. This takes the annual payment to 1.1% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Yantai China Pet Foods

Yantai China Pet Foods' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Yantai China Pet Foods was paying only paying out a fraction of earnings, but the payment was a massive 123% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share is forecast to rise by 46.1% over the next year. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Yantai China Pet Foods Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 6 years was CN¥0.0392 in 2018, and the most recent fiscal year payment was CN¥0.24. This means that it has been growing its distributions at 35% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Yantai China Pet Foods has been growing its earnings per share at 37% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Yantai China Pet Foods' payments are rock solid. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Yantai China Pet Foods that investors should know about before committing capital to this stock. Is Yantai China Pet Foods not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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