Guangdong Modern High-tech Fiber (SZSE:300876) Has Affirmed Its Dividend Of CN¥0.20

The board of Guangdong Modern High-tech Fiber Co., Ltd (SZSE:300876) has announced that it will pay a dividend of CN¥0.20 per share on the 7th of May. Including this payment, the dividend yield on the stock will be 1.1%, which is a modest boost for shareholders' returns.

Check out our latest analysis for Guangdong Modern High-tech Fiber

Guangdong Modern High-tech Fiber's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before this announcement, Guangdong Modern High-tech Fiber was paying out 866% of what it was earning, and not generating any free cash flows either. 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.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 14%, which is in a comfortable range for us.

Guangdong Modern High-tech Fiber's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The payments haven't really changed that much since 3 years ago. 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.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Guangdong Modern High-tech Fiber's earnings per share has shrunk at 51% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Guangdong Modern High-tech Fiber's Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Guangdong Modern High-tech Fiber make more consistent payments in the future. 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. We don't think that this is a great candidate to be an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Guangdong Modern High-tech Fiber (3 make us uncomfortable!) that you should be aware of before investing. 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.