Shandong Link Science and TechnologyLtd's (SZSE:001207) Upcoming Dividend Will Be Larger Than Last Year's

Shandong Link Science and Technology Co.,Ltd. (SZSE:001207) will increase its dividend from last year's comparable payment on the 10th of April to CN¥0.50. This will take the annual payment to 3.3% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Shandong Link Science and TechnologyLtd

Shandong Link Science and TechnologyLtd's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 187% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 3.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 64% by next year, which we think can be pretty sustainable going forward.

Shandong Link Science and TechnologyLtd's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The last annual payment of CN¥0.50 was flat on the annual payment from2 years ago. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Shandong Link Science and TechnologyLtd May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 3.0% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 3.0% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

We should note that Shandong Link Science and TechnologyLtd has issued stock equal to 10% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Shandong Link Science and TechnologyLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Shandong Link Science and TechnologyLtd's payments are rock solid. While Shandong Link Science and TechnologyLtd is earning enough to cover the payments, the cash flows are lacking. We don't think Shandong Link Science and TechnologyLtd is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 2 warning signs for Shandong Link Science and TechnologyLtd 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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