Zhe Jiang Hai Liang (SZSE:002203) Has Announced That It Will Be Increasing Its Dividend To CN¥0.17

Zhe Jiang Hai Liang Co., Ltd (SZSE:002203) will increase its dividend from last year's comparable payment on the 17th of July to CN¥0.17. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Zhe Jiang Hai Liang

Zhe Jiang Hai Liang's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Zhe Jiang Hai Liang's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 63.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.05 in 2014, and the most recent fiscal year payment was CN¥0.17. This means that it has been growing its distributions at 13% per annum over that time. Zhe Jiang Hai Liang has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Although it's important to note that Zhe Jiang Hai Liang's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, Zhe Jiang Hai Liang could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Zhe Jiang Hai Liang's Dividend

Overall, we always like to see the dividend being raised, but we don't think Zhe Jiang Hai Liang will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Zhe Jiang Hai Liang is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Zhe Jiang Hai Liang (of which 1 doesn't sit too well with us!) you should know about. 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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