Lianhe Chemical TechnologyLtd's (SZSE:002250) Dividend Will Be Reduced To CN¥0.02

Lianhe Chemical Technology Co.,Ltd. (SZSE:002250) is reducing its dividend from last year's comparable payment to CN¥0.02 on the 12th of July. This means that the annual payment is 0.4% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Lianhe Chemical TechnologyLtd

Lianhe Chemical TechnologyLtd's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even though Lianhe Chemical TechnologyLtd is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share is forecast to rise by 117.3% over the next year. If the dividend continues on this path, the payout ratio could be 19% 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¥0.08 in 2014 to the most recent total annual payment of CN¥0.02. Dividend payments have fallen sharply, down 75% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Lianhe Chemical TechnologyLtd May Find It Hard To Grow The Dividend

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Although it's important to note that Lianhe Chemical TechnologyLtd'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.

We're Not Big Fans Of Lianhe Chemical TechnologyLtd's Dividend

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

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. Taking the debate a bit further, we've identified 1 warning sign for Lianhe Chemical TechnologyLtd that investors need to be conscious of moving forward. 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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