Zhejiang Zhongcheng Packing Material (SZSE:002522) Is Increasing Its Dividend To CN¥0.035

Zhejiang Zhongcheng Packing Material Co., Ltd. (SZSE:002522) has announced that it will be increasing its periodic dividend on the 30th of May to CN¥0.035, which will be 17% higher than last year's comparable payment amount of CN¥0.03. Despite this raise, the dividend yield of 0.9% is only a modest boost to shareholder returns.

View our latest analysis for Zhejiang Zhongcheng Packing Material

Zhejiang Zhongcheng Packing Material's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Zhejiang Zhongcheng Packing Material's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 21.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 24% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was CN¥0.075, compared to the most recent full-year payment of CN¥0.035. Doing the maths, this is a decline of about 7.3% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Zhejiang Zhongcheng Packing Material has seen EPS rising for the last five years, at 22% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Zhejiang Zhongcheng Packing Material Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Zhejiang Zhongcheng Packing Material is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Zhejiang Zhongcheng Packing Material that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.