Zhejiang Huace Film & TV (SZSE:300133) Is Increasing Its Dividend To CN¥0.041

The board of Zhejiang Huace Film & TV Co., Ltd. (SZSE:300133) has announced that it will be paying its dividend of CN¥0.041 on the 29th of May, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 0.5% is only a modest boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Zhejiang Huace Film & TV's stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Zhejiang Huace Film & TV

Zhejiang Huace Film & TV's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Zhejiang Huace Film & TV's dividend was only 28% of earnings, however it was paying out 104% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 112.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 14%, 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. The dividend has gone from an annual total of CN¥0.0167 in 2014 to the most recent total annual payment of CN¥0.041. This works out to be a compound annual growth rate (CAGR) of approximately 9.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Zhejiang Huace Film & TV might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 3.4% per year. While growth may be thin on the ground, Zhejiang Huace Film & TV could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Zhejiang Huace Film & TV's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Zhejiang Huace Film & TV (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.