Henan Jindan Lactic Acid TechnologyLtd's (SZSE:300829) Dividend Will Be Reduced To CN¥0.10

Henan Jindan Lactic Acid Technology Co.,Ltd.'s (SZSE:300829) dividend is being reduced from last year's payment covering the same period to CN¥0.10 on the 4th of June. This means that the dividend yield is 0.6%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Henan Jindan Lactic Acid TechnologyLtd

Henan Jindan Lactic Acid TechnologyLtd's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Henan Jindan Lactic Acid TechnologyLtd's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, EPS could fall by 7.3% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 25%, which is definitely feasible to continue.

Henan Jindan Lactic Acid TechnologyLtd's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the annual payment back then was CN¥0.125, compared to the most recent full-year payment of CN¥0.10. The dividend has shrunk at around 7.2% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Is Doubtful

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. In the last five years, Henan Jindan Lactic Acid TechnologyLtd's earnings per share has shrunk at approximately 7.3% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Henan Jindan Lactic Acid TechnologyLtd is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Henan Jindan Lactic Acid TechnologyLtd has 4 warning signs (and 2 which don't sit too well with us) we think you should know about. Is Henan Jindan Lactic Acid TechnologyLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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