XianheLtd (SHSE:603733) Is Increasing Its Dividend To CN¥0.35

Xianhe Co.,Ltd.'s (SHSE:603733) dividend will be increasing from last year's payment of the same period to CN¥0.35 on 27th of June. Although the dividend is now higher, the yield is only 1.9%, which is below the industry average.

See our latest analysis for XianheLtd

XianheLtd's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. XianheLtd is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 94.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

XianheLtd's Dividend Has Lacked Consistency

It's comforting to see that XianheLtd has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2018, the dividend has gone from CN¥0.60 total annually to CN¥0.35. This works out to be a decline of approximately 8.6% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. XianheLtd has impressed us by growing EPS at 25% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On XianheLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think XianheLtd will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for XianheLtd you should be aware of, and 2 of them are a bit concerning. Is XianheLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com