Hangzhou Oxygen Plant GroupLtd (SZSE:002430) Will Pay A Dividend Of CN¥0.80

Hangzhou Oxygen Plant Group Co.,Ltd. (SZSE:002430) has announced that it will pay a dividend of CN¥0.80 per share on the 15th of May. Based on this payment, the dividend yield on the company's stock will be 3.7%, which is an attractive boost to shareholder returns.

See our latest analysis for Hangzhou Oxygen Plant GroupLtd

Hangzhou Oxygen Plant GroupLtd's 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. Prior to this announcement, Hangzhou Oxygen Plant GroupLtd's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

The next year is set to see EPS grow by 66.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was CN¥0.15, compared to the most recent full-year payment of CN¥1.00. This means that it has been growing its distributions at 21% per annum 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.

Hangzhou Oxygen Plant GroupLtd Could Grow Its Dividend

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. We are encouraged to see that Hangzhou Oxygen Plant GroupLtd has grown earnings per share at 8.0% 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.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've picked out 1 warning sign for Hangzhou Oxygen Plant GroupLtd that investors should know about before committing capital to this stock. Is Hangzhou Oxygen Plant GroupLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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