Baoshan Iron & Steel (SHSE:600019) Will Pay A Larger Dividend Than Last Year At CN¥0.20

The board of Baoshan Iron & Steel Co., Ltd. (SHSE:600019) has announced that it will be paying its dividend of CN¥0.20 on the 13th of June, an increased payment from last year's comparable dividend. This takes the dividend yield to 4.4%, which shareholders will be pleased with.

See our latest analysis for Baoshan Iron & Steel

Baoshan Iron & Steel's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Baoshan Iron & Steel's dividend was only 56% of earnings, however it was paying out 157% of free 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.

The next year is set to see EPS grow by 35.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.138, compared to the most recent full-year payment of CN¥0.31. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Baoshan Iron & Steel might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Come By

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. Baoshan Iron & Steel has seen earnings per share falling at 8.1% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Baoshan Iron & Steel's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Baoshan Iron & Steel will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

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 Baoshan Iron & Steel 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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