Zangge Mining's (SZSE:000408) Dividend Will Be CN¥0.80

The board of Zangge Mining Company Limited (SZSE:000408) has announced that it will pay a dividend of CN¥0.80 per share on the 19th of April. However, the dividend yield of 5.5% is still a decent boost to shareholder returns.

View our latest analysis for Zangge Mining

Zangge Mining's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Zangge Mining's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Earnings per share is forecast to rise by 27.7% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 76% which is a bit high but can definitely be sustainable.

Zangge Mining's Dividend Has Lacked Consistency

Zangge Mining has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was CN¥0.30 in 2017, and the most recent fiscal year payment was CN¥1.60. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. 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

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. It's encouraging to see that Zangge Mining has been growing its earnings per share at 38% a year over the past five years. Zangge Mining is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Zangge Mining is earning enough to cover the dividend, we are generally unimpressed with its future prospects. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Zangge Mining 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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