Stock Analysis

Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's (SHSE:600663) Shareholders Will Receive A Smaller Dividend Than Last Year

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Shanghai Lujiazui Finance & Trade Zone Development Co.,Ltd.'s (SHSE:600663) dividend is being reduced from last year's payment covering the same period to CN¥0.114 on the 3rd of June. This payment takes the dividend yield to 1.1%, which only provides a modest boost to overall returns.

See our latest analysis for Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd

Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd'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. Based on the last payment, Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Unless the company can turn things around, EPS could fall by 24.0% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 72%, which is definitely feasible to continue.

SHSE:600663 Historic Dividend May 31st 2024

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 annual payment during the last 10 years was CN¥0.105 in 2014, and the most recent fiscal year payment was CN¥0.114. Dividend payments have grown at less than 1% a year over this period. 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. Earnings per share has been sinking by 24% over the last 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.

We should note that Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd has issued stock equal to 19% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd you should be aware of, and 2 of them make us uncomfortable. 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.