Sinoma Science & TechnologyLtd (SZSE:002080) Has Announced That Its Dividend Will Be Reduced To CN¥0.56

Sinoma Science & Technology Co.,Ltd. (SZSE:002080) is reducing its dividend from last year's comparable payment to CN¥0.56 on the 31st of May. However, the dividend yield of 3.6% is still a decent boost to shareholder returns.

See our latest analysis for Sinoma Science & TechnologyLtd

Sinoma Science & TechnologyLtd's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Sinoma Science & TechnologyLtd's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. 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.

The next year is set to see EPS grow by 67.3%. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of CN¥0.0481 in 2014 to the most recent total annual payment of CN¥0.56. This means that it has been growing its distributions at 28% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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 Sinoma Science & TechnologyLtd has been growing its earnings per share at 16% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Sinoma Science & TechnologyLtd is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 4 warning signs for Sinoma Science & TechnologyLtd that you should be aware of before investing. Is Sinoma Science & TechnologyLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.