Hootech's (SZSE:301026) Shareholders Will Receive A Smaller Dividend Than Last Year

Hootech Inc. (SZSE:301026) is reducing its dividend from last year's comparable payment to CN¥0.30 on the 29th of May. This means that the annual payment is 1.1% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Hootech

Hootech's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Hootech was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share could rise by 3.7% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

Hootech's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The annual payment during the last 2 years was CN¥0.40 in 2022, and the most recent fiscal year payment was CN¥0.30. The dividend has fallen 25% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Hootech May Find It Hard To Grow The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings has been rising at 3.7% per annum over the last five years, which admittedly is a bit slow. If Hootech is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Hootech's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for Hootech (3 are significant!) that you should be aware of before investing. Is Hootech not quite the opportunity you were looking for? Why not check out our selection of top 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.