Luyang Energy-Saving Materials (SZSE:002088) Will Pay A Dividend Of CN¥0.80

Luyang Energy-Saving Materials Co., Ltd.'s (SZSE:002088) investors are due to receive a payment of CN¥0.80 per share on 14th of June. The dividend yield will be 5.7% based on this payment which is still above the industry average.

See our latest analysis for Luyang Energy-Saving Materials

Luyang Energy-Saving Materials' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. At the time of the last dividend payment, Luyang Energy-Saving Materials was paying out a very large proportion of what it was earning and 127% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 56.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CN¥0.0476 in 2014 to the most recent total annual payment of CN¥0.80. This works out to be a compound annual growth rate (CAGR) of approximately 33% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Luyang Energy-Saving Materials' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Luyang Energy-Saving Materials has grown earnings per share at 8.2% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Luyang Energy-Saving Materials' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Luyang Energy-Saving Materials that investors should take into consideration. Is Luyang Energy-Saving Materials not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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