Shandong Liancheng Precision Manufacturing's (SZSE:002921) Dividend Will Be Reduced To CN¥0.10

Shandong Liancheng Precision Manufacturing Co., Ltd (SZSE:002921) is reducing its dividend from last year's comparable payment to CN¥0.10 on the 7th of June. This payment takes the dividend yield to 0.9%, which only provides a modest boost to overall returns.

Check out our latest analysis for Shandong Liancheng Precision Manufacturing

Shandong Liancheng Precision Manufacturing Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Shandong Liancheng Precision Manufacturing's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

If the company can't turn things around, EPS could fall by 75.7% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 122,588%, which is definitely a bit high to be sustainable going forward.

Shandong Liancheng Precision Manufacturing's Dividend Has Lacked Consistency

Shandong Liancheng Precision Manufacturing has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 6 years was CN¥0.192 in 2018, and the most recent fiscal year payment was CN¥0.10. The dividend has fallen 48% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Shandong Liancheng Precision Manufacturing's EPS has fallen by approximately 76% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Shandong Liancheng Precision Manufacturing's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 5 warning signs for Shandong Liancheng Precision Manufacturing (of which 2 are concerning!) you should know about. Is Shandong Liancheng Precision Manufacturing not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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