Yongxing Special Materials TechnologyLtd (SZSE:002756) Will Pay A Smaller Dividend Than Last Year

Yongxing Special Materials Technology Co.,Ltd (SZSE:002756) has announced that on 10th of October, it will be paying a dividend ofCN¥0.50, which a reduction from last year's comparable dividend. The dividend yield of 9.6% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Yongxing Special Materials TechnologyLtd

Yongxing Special Materials TechnologyLtd's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last dividend, Yongxing Special Materials TechnologyLtd is earning enough to cover the payment, but then it makes up 112% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 18.9% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 95% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Yongxing Special Materials TechnologyLtd's Dividend Has Lacked Consistency

Yongxing Special Materials TechnologyLtd has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the dividend has gone from CN¥0.0855 total annually to CN¥4.00. This means that it has been growing its distributions at 62% per annum over that time. Yongxing Special Materials TechnologyLtd 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Yongxing Special Materials TechnologyLtd has seen EPS rising for the last five years, at 36% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Yongxing Special Materials TechnologyLtd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. For example, we've identified 4 warning signs for Yongxing Special Materials TechnologyLtd (1 is potentially serious!) that you should be aware of before investing. 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.