Shenzhen Zhongjin Lingnan Nonfemet's (SZSE:000060) Dividend Will Be Reduced To CN¥0.056

Shenzhen Zhongjin Lingnan Nonfemet Co. Ltd. (SZSE:000060) is reducing its dividend from last year's comparable payment to CN¥0.056 on the 9th of July. This payment takes the dividend yield to 1.3%, which only provides a modest boost to overall returns.

See our latest analysis for Shenzhen Zhongjin Lingnan Nonfemet

Shenzhen Zhongjin Lingnan Nonfemet's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Shenzhen Zhongjin Lingnan Nonfemet's earnings easily covered the dividend, but free cash flows were negative. 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.

Over the next year, EPS is forecast to expand by 93.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.03 in 2014, and the most recent fiscal year payment was CN¥0.056. This means that it has been growing its distributions at 6.4% per annum 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. Shenzhen Zhongjin Lingnan Nonfemet 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. Over the past five years, it looks as though Shenzhen Zhongjin Lingnan Nonfemet's EPS has declined at around 7.8% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Shenzhen Zhongjin Lingnan Nonfemet's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Shenzhen Zhongjin Lingnan Nonfemet 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Shenzhen Zhongjin Lingnan Nonfemet has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Shenzhen Zhongjin Lingnan Nonfemet 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