Zhejiang XinNong ChemicalLtd (SZSE:002942) Will Pay A Smaller Dividend Than Last Year

Zhejiang XinNong Chemical Co.,Ltd.'s (SZSE:002942) dividend is being reduced by 20% to CN¥0.20 per share on 26th of June, in comparison to last year's comparable payment of CN¥0.25. Based on this payment, the dividend yield will be 2.0%, which is lower than the average for the industry.

View our latest analysis for Zhejiang XinNong ChemicalLtd

Zhejiang XinNong ChemicalLtd Is Paying Out More Than It Is Earning

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, EPS could fall by 51.8% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 1,617%, which could put the dividend in jeopardy if the company's earnings don't improve.

Zhejiang XinNong ChemicalLtd's Dividend Has Lacked Consistency

Looking back, Zhejiang XinNong ChemicalLtd's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 5 years was CN¥0.231 in 2019, and the most recent fiscal year payment was CN¥0.25. This implies that the company grew its distributions at a yearly rate of about 1.6% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Potential Is Shaky

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. Earnings per share has been sinking by 52% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Zhejiang XinNong ChemicalLtd's Dividend Doesn't Look Great

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. 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. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Zhejiang XinNong ChemicalLtd has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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