Shenzhen Capchem Technology (SZSE:300037) Has Announced That It Will Be Increasing Its Dividend To CN¥0.60

Shenzhen Capchem Technology Co., Ltd. (SZSE:300037) has announced that it will be increasing its dividend from last year's comparable payment on the 10th of May to CN¥0.60. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average.

Check out our latest analysis for Shenzhen Capchem Technology

Shenzhen Capchem Technology's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Shenzhen Capchem Technology's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 137.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from CN¥0.0694 total annually to CN¥0.60. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. Shenzhen Capchem Technology 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 see if earnings per share is growing. It's encouraging to see that Shenzhen Capchem Technology has been growing its earnings per share at 20% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Shenzhen Capchem Technology could prove to be a strong dividend payer.

We Really Like Shenzhen Capchem Technology's Dividend

Overall, a dividend increase is always good, and we think that Shenzhen Capchem Technology is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Shenzhen Capchem Technology that you should be aware of before investing. Is Shenzhen Capchem Technology not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.