Shandong Gold Mining (SHSE:600547) Is Increasing Its Dividend To CN¥0.14

Shandong Gold Mining Co., Ltd. (SHSE:600547) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of July to CN¥0.14. Despite this raise, the dividend yield of 0.5% is only a modest boost to shareholder returns.

View our latest analysis for Shandong Gold Mining

Shandong Gold Mining's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Shandong Gold Mining's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 162.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CN¥0.051 in 2014 to the most recent total annual payment of CN¥0.14. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. It's encouraging to see that Shandong Gold Mining has been growing its earnings per share at 11% a year over the past five years. Shandong Gold Mining definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Shandong Gold Mining's payments are rock solid. While Shandong Gold Mining is earning enough to cover the payments, the cash flows are lacking. We don't think Shandong Gold Mining 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. Taking the debate a bit further, we've identified 1 warning sign for Shandong Gold Mining that investors need to be conscious of moving forward. Is Shandong Gold Mining 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.

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