Jiangsu Shagang (SZSE:002075) Is Due To Pay A Dividend Of CN¥0.05

The board of Jiangsu Shagang Co., Ltd. (SZSE:002075) has announced that it will pay a dividend of CN¥0.05 per share on the 26th of June. This payment means the dividend yield will be 1.2%, which is below the average for the industry.

Check out our latest analysis for Jiangsu Shagang

Jiangsu Shagang's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Jiangsu Shagang's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

EPS is set to fall by 28.8% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 85%, which is definitely on the higher side.

Jiangsu Shagang's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of CN¥0.06 in 2018 to the most recent total annual payment of CN¥0.05. This works out to be a decline of approximately 3.0% 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.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Jiangsu Shagang's EPS has declined at around 29% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Jiangsu Shagang's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Jiangsu Shagang is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 4 warning signs for Jiangsu Shagang you should be aware of, and 2 of them don't sit too well with us. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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