Jiangsu Flag Chemical Industry's (SZSE:300575) Dividend Will Be Reduced To CN¥0.12

Jiangsu Flag Chemical Industry Co., Ltd. (SZSE:300575) is reducing its dividend from last year's comparable payment to CN¥0.12 on the 22nd of May. This means that the dividend yield is 1.9%, which is a bit low when comparing to other companies in the industry.

View our latest analysis for Jiangsu Flag Chemical Industry

Jiangsu Flag Chemical Industry's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Jiangsu Flag Chemical Industry was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

If the company can't turn things around, EPS could fall by 19.3% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 90%, meaning that most of the company's earnings is being paid out to shareholders.

Jiangsu Flag Chemical Industry's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2017, the dividend has gone from CN¥0.0362 total annually to CN¥0.12. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Limited Growth Potential

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. Jiangsu Flag Chemical Industry's EPS has fallen by approximately 19% per year during the past 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.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Jiangsu Flag Chemical Industry is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 3 warning signs for Jiangsu Flag Chemical Industry that investors should know about before committing capital to this stock. 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.