Jinzai Food GroupLtd's (SZSE:003000) Upcoming Dividend Will Be Larger Than Last Year's

The board of Jinzai Food Group Co.,Ltd. (SZSE:003000) has announced that it will be paying its dividend of CN¥0.30 on the 30th of April, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.1%, which is in line with the average for the industry.

Check out our latest analysis for Jinzai Food GroupLtd

Jinzai Food GroupLtd's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last payment was quite easily covered by earnings, but it made up 213% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 76.8%. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.

Jinzai Food GroupLtd's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2020, the dividend has gone from CN¥0.10 total annually to CN¥0.30. This means that it has been growing its distributions at 32% per annum over that time. Jinzai Food GroupLtd 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 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. We are encouraged to see that Jinzai Food GroupLtd has grown earnings per share at 11% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Jinzai Food GroupLtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Jinzai Food GroupLtd (1 is significant!) that you should be aware of before investing. Is Jinzai Food GroupLtd 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.