Yechiu Metal Recycling (China)'s (SHSE:601388) Dividend Is Being Reduced To CN¥0.013

Yechiu Metal Recycling (China) Ltd. (SHSE:601388) has announced that on 3rd of June, it will be paying a dividend ofCN¥0.013, which a reduction from last year's comparable dividend. This means that the dividend yield is 0.4%, which is a bit low when comparing to other companies in the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Yechiu Metal Recycling (China)'s stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Yechiu Metal Recycling (China)

Yechiu Metal Recycling (China)'s 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, Yechiu Metal Recycling (China) was paying only paying out a fraction of earnings, but the payment was a massive 174% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 4.6%, so there isn't too much pressure on the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.0132, compared to the most recent full-year payment of CN¥0.013. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Yechiu Metal Recycling (China) has been growing its earnings per share at 23% 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

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Yechiu Metal Recycling (China) is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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 picked out 2 warning signs for Yechiu Metal Recycling (China) that investors should know about before committing capital to this stock. 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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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.