Autek China (SZSE:300595) Has Announced That It Will Be Increasing Its Dividend To CN¥0.223

Autek China Inc. (SZSE:300595) will increase its dividend from last year's comparable payment on the 16th of May to CN¥0.223. Although the dividend is now higher, the yield is only 1.2%, which is below the industry average.

See our latest analysis for Autek China

Autek China's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Autek China's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 44.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

Autek China 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 dividend has gone from an annual total of CN¥0.0286 in 2017 to the most recent total annual payment of CN¥0.223. This implies that the company grew its distributions at a yearly rate of about 34% over that duration. 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. Autek China has impressed us by growing EPS at 23% per 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.

Autek China Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Autek China is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Autek China that investors need to be conscious of moving forward. Is Autek China not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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